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Optimal Pricing of Transport Externalities in a Federal System

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  • Bruno De Borger
  • Christophe Courcelle
  • Didier Swysen

Abstract

The purpose of this paper is to study welfare-optimal pricing of passenger and freight transport services in a federation. The prevalence of international transport flows in small open economies creates opportunities for tax competition and tax exporting. The latter strongly depend on the possibilities for price discrimination between domestic and international transport. Moreover, transport flows generate both local and trans-boundary externalities. Although these issues have been studied in isolation in the public economics literature, this paper integrates many of the complications associated with the international dimension of transport flows in a model specifically tailored towards the transport sector. Optimal pricing and investment rules are derived for individual countries and for the federation as a whole. It is shown that tax competition due to the mobility of the tax base may raise or reduce domestic taxes. Tax exporting induces higher transport taxes in countries with substantial international and transit freight transport. The model further identifies the role of external cost spillovers to other regions, it illustrates the role of differences in the shadow cost of funds, and it considers the role of potential price discrimination between local and international traffic. © The London School of Economics and the University of Bath 2003

Suggested Citation

  • Bruno De Borger & Christophe Courcelle & Didier Swysen, 2003. "Optimal Pricing of Transport Externalities in a Federal System," Journal of Transport Economics and Policy, University of Bath, vol. 37(1), pages 69-94, January.
    • Handle: RePEc:tpe:jtecpo:v:37:y:2003:i:1:p:69-94
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    Cited by:

    1. De Borger, Bruno & Courcelle, Christophe & Swysen, Didier, 2004. "Optimal pricing of transport externalities in an international environment: some empirical results based on a numerical optimization model," Regional Science and Urban Economics, Elsevier, vol. 34(2), pages 163-201, March.
    2. Ahlberg, Joakim, 2006. "Optimal Taxation of Intermediate Goods in the Presence of Externalities: A Survey Towards the Transport Sector," Working Papers 2006:3, Swedish National Road & Transport Research Institute (VTI).
    3. Edward Calthrop & Stef Proost, 1998. "Road Transport Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 335-348, April.

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