Cross-border housing markets have become increasingly common in Europe following the establishment of the European Union. Using data from the functional urban area of Luxembourg, we document substantial floorspace price discontinuities at the borders between Luxembourg and Belgium, France, and Germany. Combining a quantitative spatial urban model with spatial regression discontinuity techniques, we estimate that differences in tax rates and tax importation explain 9% and 17% of the observed price discontinuity, respectively. The remaining price gap is accounted for by differences in productivity and amenities.

This paper studies the effects of congestion relief in a spatial general equilibrium model of Luxembourg and its cross-border commuting region. Using traffic speed data, we implement a difference-in-differences design on Luxembourg’s highways to measure congestion severity and identify choke points. Counterfactual simulations set highway speeds to free-flow levels and quantify resulting changes in output, welfare, and fiscal revenues. Economic output increases in Luxembourg City and Esch, while other cities lose production but gain in resident welfare. For residents of Luxembourg City, the short-run welfare effect is estimated at −EUR 1,140 per person per year, which becomes +EUR 3,490 in the long run after population reallocation. When migration from the outside economy is allowed, the welfare effect turns negative at −EUR 8,110 per person per year. Eliminating congestion generates fiscal gains of EUR 2.50 billion annually in the short run, EUR 1.18 billion in the long run, and EUR 7.04 billion when migration inflows are considered.