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Lunchseminar in Economics: Distributional Effects of Surging Housing Costs under Schwabe's Law

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Speaker: Thomas Steger, Leipzig University, Germany
Event date: Wednesday, 26 February 2020 12:30 pm - 01:30 pm
Place: Université du Luxembourg, Campus Kirchberg, 6, rue Richard Coudenhove-Calergi L-1359 Luxembourg, Building C, ground floor, Room 002

The upward sloping trend of rents and house prices has initiated a debate on the consequences of surging housing costs for wealth inequality and welfare. We employ a frictionless two-sectoral macroeconomic model with a housing sector to investigate the dynamics of wealth inequality and the determinants of welfare. Households have non-homothetic preferences, implying that the poor choose a higher housing expenditure share, which is compatible with Schwabe's Law. We first examine the isolated effects of increasing housing costs in partial equilibrium. The model is closed by introducing a production sector that enables us to analyze the general equilibrium consequences of a widely discussed policy option, which aims at dampening the growth of housing costs. Abolishing zoning regulations triggers a slower rent growth and reduces wealth inequality by 0.7 percentage points (measured by the top 10 percent share). Average welfare increases by 0.5 percent. The household-specific welfare effects are asymmetric. The poor benefit more than the rich and the richest wealth decile is even worse off.

Thomas Steger is Professor of Economics at Leipzig University. He is also a Research Fellow at CESifo and a Research Professor of the IWH. Before moving to Leipzig, he was a Postdoctoral Researcher at ETH Zurich. He has also been a Visiting Professor at Heidelberg University, Tilburg University and the University of Washington. His research focuses on economic growth and development, capital mobility and migration, as well as public finance. He has published in many leading journals, including the American Economic Review, Review of Economics and Statistics, Journal of Public Economics, European Economic Review, Journal of Development Economics, as well as the Journal of Economic Dynamics and Control.

Link: https://wwwfr.uni.lu/recherche/fdef/dem/seminars
Data: STEGER Thomas 2020.02.26.pdf 227.18 kB