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Estimating the demand and supply price-elasticity of housing floor space using a quasi-experiment VAT cut

Author

Listed:
  • Guillaume Chapelle
  • Alain Trannoy

    (CY Cergy Paris Université, THEMA)

Abstract

Using French cadastral and transaction data, we study the effects of a VAT cut from 20% to 5.5% on new residential construction in and around about 600 deprived neighborhoods. The reduced rate raised the housing stock by 2% in floorspace terms, equivalent to roughly two years of residential investment over a decade, and generated a gain in total surplus of about €13.6 billion. We estimate the price elasticity of floor-space demand at −0.24, with a 60% pass-through to buyers; landowners and developers each capture roughly half of the remainder. We also confirm that housing supply in France is price-inelastic (elasticity of 0.35).

Suggested Citation

  • Guillaume Chapelle & Alain Trannoy, 2026. "Estimating the demand and supply price-elasticity of housing floor space using a quasi-experiment VAT cut," Thema Working Papers 2026-11, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    • Handle: RePEc:ema:worpap:2026-11
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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