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Are housing benefit an effective way to redistribute income? Evidence from a natural experiment in France

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  • Fack, Gabrielle

Abstract

In this paper, I show that in-kind benefit such as a housing benefit program may have a significant impact on the price of the subsidized good. I use a French housing benefit reform to evaluate the impact of the subsidy on the level of rents. The results indicate that one additional euro of housing benefit leads to an increase of 78 cents in the rent paid by new benefit claimants, leaving only 22 cents available to reduce their net rent and increase their consumption. This large impact of housing benefit on rents appears to be the result of a very low housing supply elasticity. I show that the housing benefit reform induced additional demand, not only from low income households but also from students who used the benefit to become independent. Unfortunately, this increase in demand was unmatched by increasing housing supply in the short and middle term. The only possible effect of the reform is a small increase in housing quality. These results raise questions about the use of such in-kind transfers when the supply of the subsidized good is almost inelastic. It is therefore very important to estimate the incidence of the subsidy when assessing the efficiency of such welfare programs.
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  • Fack, Gabrielle, 2006. "Are housing benefit an effective way to redistribute income? Evidence from a natural experiment in France," Labour Economics, Elsevier, vol. 13(6), pages 747-771, December.
  • Handle: RePEc:eee:labeco:v:13:y:2006:i:6:p:747-771
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    1. Currie, Janet & Yelowitz, Aaron, 2000. "Are public housing projects good for kids?," Journal of Public Economics, Elsevier, vol. 75(1), pages 99-124, January.
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    7. Moffitt, Robert, 1989. "Estimating the Value of an In-Kind Transfer: The Case of Food Stamps," Econometrica, Econometric Society, vol. 57(2), pages 385-409, March.
    8. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
    9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    10. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
    11. Austan Goolsbee, 1998. "Investment Tax Incentives, Prices, and the Supply of Capital Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 121-148.
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    Cited by:

    1. Aki Kangasharju, 2010. "Housing Allowance and the Rent of Low-income Households," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(3), pages 595-617, September.
    2. Virén, Matti, 2011. "Does housing allowance feed through into rental prices?," Research Discussion Papers 11/2011, Bank of Finland.
    3. Johannes Abeler & Felix Marklein, 2017. "Fungibility, Labels, and Consumption," Journal of the European Economic Association, European Economic Association, vol. 15(1), pages 99-127.
    4. Stephen Gibbons & Olmo Silva & Maria Sánchez-Vidal, 2018. "The Bedroom Tax," CEP Discussion Papers dp1537, Centre for Economic Performance, LSE.
    5. Claire Dujardin & Florence Goffette-Nagot, 2009. "Does public housing occupancy increase unemployment?," Journal of Economic Geography, Oxford University Press, vol. 9(6), pages 823-851, November.
    6. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2016. "Appendix to "Distributional National Accounts: Methods and Estimates for the United States"," Working Papers 201604, World Inequality Lab.
    7. repec:kap:reveho:v:15:y:2017:i:3:d:10.1007_s11150-015-9291-z is not listed on IDEAS
    8. Benoît Schmutz, 2015. "Spatial sorting of African Immigrants in the French Public Housing Market," The Review of Black Political Economy, Springer;National Economic Association, vol. 42(3), pages 247-270, September.
    9. Laurent Gobillon & Benjamin Vignolles, 2014. "Evaluation de l'effet d'une politique spatialisée d'accès au logement : la loi Solidarité et Renouvellement Urbain (SRU)," PSE Working Papers halshs-01013384, HAL.
    10. Essi Eerola & Teemu Lyytikäinen, 2017. "Housing Allowance and Rents: Evidence from a Stepwise Subsidy Scheme," SERC Discussion Papers 0220, Spatial Economics Research Centre, LSE.
    11. Timo Hener, 2013. "Labeling Effects of Child Benefits on Family Savings," ifo Working Paper Series 163, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    12. Michael D. Eriksen & Amanda Ross, 2015. "Housing Vouchers and the Price of Rental Housing," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 154-176, August.
    13. Matti Viren, 2013. "Is the housing allowance shifted to rental prices?," Empirical Economics, Springer, vol. 44(3), pages 1497-1518, June.

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