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Assessment of the introduction of road pricing using a Computable General Equilibrium model

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  • Knud Jørgen Munk

    ()
    (Department of Economics, University of Aarhus, Denmark)

Abstract

The introduction of road pricing has important budgetary and income distributional consequences. In countries like Denmark, due to high marginal rates of taxation, raising government revenue and redistributing income is associated with substantial distortionary and administrative costs. This paper argues that an evaluation of the introduction of road pricing needs to take into account not only the effects on congestion and on the environment, but also the effects on the government’s budget and the income distributional consequences and therefore should be undertaken within a general equilibrium framework. A stylized Computable General Equilibrium (CGE) model which represents the interaction of the consumption of transport and of traffic congestion with leisure is used to illustrate this point. Model simulations show that the introduction of road pricing may be associated with a double dividend and make it desirable to reduce transport infrastructure, and furthermore, although decreasing road congestion, increase the environmental damage.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2005-23.

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Length: 28
Date of creation: 30 Dec 2005
Date of revision:
Handle: RePEc:aah:aarhec:2005-23

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Project evaluation; optimal taxation; externalities; separability; road pricing; CGE models; double dividend;

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  1. Edward Calthrop & Bruno De Borger & Stef Proost, 2003. "Tax reform for dirty intermediate goods: theory and an application to the taxation of freight transport," Energy, Transport and Environment Working Papers Series ete0302, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  2. DE BORGER, Bruno & VAN DENDER, Kurt, . "Transport tax reform, commuting and endogenous values of time," Working Papers 2003004, University of Antwerp, Faculty of Applied Economics.
  3. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-79, June.
  4. P. A. Diamond, 1975. "A Many-Person Ramsey Tax Rule," Working papers 146, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
  6. Dixit, A. K. & Munk, K. J., 1977. "Welfare effects of tax and price changes : A correction," Journal of Public Economics, Elsevier, vol. 8(1), pages 103-107, August.
  7. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
  8. Parry, Ian & Bento, Antonio, 1999. "Revenue Recycling and the Welfare Effects of Road Pricing," Discussion Papers dp-99-45, Resources For the Future.
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Cited by:
  1. MUNK, Knud J., 2011. "Optimal taxation in the presence of a congested public good and an application to transport policy," CORE Discussion Papers 2011057, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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