Foreign Residents and the Future of Global Cities

Global cities are attracting a growing number of tourists and foreign residents. This influx generates capital gains for property owners but adversely affects renters, creating potentially important production, congestion, and amenities externalities. We study the optimal policy regarding local and foreign residents in a model with key features emphasized in policy debates. Using this model, we provide sufficient statistics to calculate the optimal tax and transfer policies that internalize agglomeration, congestion, and other potential externalities. We find that it is not optimal to impose zoning regulations or to restrict, tax, or subsidize home purchases by foreign residents. However, it may be optimal to charge an entry fee to foreign residents.