Foreign Residents and the Future of Global Cities

Global cities are attracting an increasing number of tourists and foreign residents. This surge generates capital gains for property owners but negatively impacts renters and creates potentially important production, congestion, and amenities externalities. We study the optimal policy toward 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/transfer policies. These policies involve implementing transfers to internalize agglomeration, congestion, and other potential externalities. Importantly, it is not optimal to restrict, tax, or subsidize home purchases by foreign residents.