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This paper analyzes the effects of city-level zoning reforms on the spatial distribution of economic activity in a metropolitan area. Using parcel-level property tax and zoning data, I use Minneapolis recent reform, which eliminated single-family zoning lots, to estimate productivity gains in the local housing development sector. Using the methodology, I find that median productivity in the housing development sector is expected to grow by 9 percent at the tract level in the city. I feed the estimated productivity gain into a quantitative spatial model of the Twin Cities, the metropolitan area which Minneapolis is a part of, to compute the effect of the reform on local wages, rents and commuting patterns in the metropolitan area. I find that housing becomes around twenty five percent more affordable in Minneapolis, and rents in most of the metropolitan area fall significantly as well. As a result of people moving to Minneapolis after the zoning reform, wages in other regions of the metropolitan area increase modestly.
This paper develops a general equilibrium model with sectoral linkages in which firms face borrowing constraints that can be alleviated by government subsidies. We use this model to evaluate how the Brazilian government’s policy to direct subsidized credit to specific sectors, called earmarked loans, impacts output per worker through two channels. The first one is the general equilibrium effect of alleviating the borrowing constraint of a sector, increasing output. The second channel works in the other direction. In order to raise funds to subsidize loans, the government needs to tax labor and hence distorts households’ consumption–labor supply decisions. Whether the first effect dominates the second depends on how relevant the subsidized sector is in the economy’s production network structure. We calibrate the model using Brazilian data to study the federal government’s decision to increase subsidies for specific sectors in the credit market, perform optimal policy analysis, and investigate how the economy would have performed had the policy not changed. We find that the behavior of sectoral productivity was more important to explain sluggish performance of the Brazilian economy after the Great Recession than changes in government intervention in the credit markets. In addition, we find that the optimal subsidy policy would require higher sectoral subsidies than the ones observed in the data.