If you rent your property to people on Airbnb you are meant to declare the income you receive to the tax authorities and pay tax on it. The suspicion is that many property-owners did not do in the past but recently the UK tax authorities reached an agreement with Airbnb to receive all the data on payments to property-owners making it harder to avoid paying the tax due on the rental income.

1. Using a diagram with the price paid by renters on the vertical axis or otherwise, explain why the stricter enforcement of the tax laws might be expected to reduce the supply of properties on Airbnb.
2. What would you expect to be the impact on prices and the number of rentals if the supply of Airbnb rentals is reduced?
3. Who are the winners and losers from greater tax enforcement? Explain your answer.
4. What would you expect to be the impact of increased tax enforcement on the market for hotels?