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Commuting, congestion tolls and noncompetitive labour markets: Optimal congestion pricing in a wage bargaining model

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  • DE BORGER, Bruno

Abstract

The purpose of this paper is to study optimal congestion tolls in a bargaining model of the labour market. The model distinguishes commuting and non-commuting transport, and it allows some telecommuting. We first show that transport taxes as well as congestion levels raise negotiated wages and reduce employment levels; more efficient homework reduces wages. We then study optimal second-best labour and transport tax policies and find that they strongly depend on the impact of congestion on labour market outcomes. If transport taxes have to be uniform for commuting and other trip purposes, the optimal peak period transport tax positively depends on the impact of congestion on negotiated wages, and negatively on the wage effects of the congestion tax itself. Moreover, the tax rises to the extent that demand by people that are not active on the labour market represent a larger fraction of peak period transport flows. We further show that more efficient homework does not necessarily reduce congestion nor the optimal transport tax. If taxes can be differentiated according to trip purpose, ‘subsidizing’ commuting is justified as a way to shift the tax burden away from the employed. Finally, extending the model for multiple transport modes we find that the impact of congestion on negotiated wages provides an argument for subsidizing commuting by public transport but not by car, a proposal suggested in several European countries.

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Bibliographic Info

Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2006014.

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Length: 53 pages
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Handle: RePEc:ant:wpaper:2006014

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Postal: Prinsstraat 13, B-2000 Antwerpen
Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
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  1. A. Lans Bovenberg & Lawrence H. Goulder, 1994. "Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses," NBER Working Papers 4897, National Bureau of Economic Research, Inc.
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  4. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, American Economic Association, vol. 95(4), pages 1276-1289, September.
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  9. Matthias Wrede, 2000. "Tax Deductibility of Commuting Expenses and Leisures: On the Tax Treatment of Time-Saving Expenditure," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 57(2), pages 216-, March.
  10. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, Elsevier, vol. 42(1), pages 155-183, January.
  11. Schneider, Kerstin, 1997. " Involuntary Unemployment and Environmental Policy: The Double Dividend Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 99(1), pages 45-49, March.
  12. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, American Economic Association, vol. 83(1), pages 161-79, March.
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  15. Van Ommeren, Jos & Rietveld, Piet, 2005. "The commuting time paradox," Journal of Urban Economics, Elsevier, vol. 58(3), pages 437-454, November.
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Cited by:
  1. DE BORGER, Bruno & WUYTS, Bart, 2010. "The tax treatment of company cars, commuting and optimal congestion taxes," Working Papers 2010017, University of Antwerp, Faculty of Applied Economics.
  2. DE BORGER, Bruno & WUYTS, Bart, 2010. "The structure of the labour market, telecommuting, and optimal peak period congestion tolls: A numerical optimisation model," Working Papers 2010013, University of Antwerp, Faculty of Applied Economics.
  3. CALTHROP, Edward & DE BORGER, Bruno & PROOST, Stef, . "Externalities and partial tax reform: Does it make sense to tax road freight (but not passenger) transport?," Working Papers 2006017, University of Antwerp, Faculty of Applied Economics.
  4. De Borger, Bruno, 2009. "Commuting, congestion tolls and the structure of the labour market: Optimal congestion pricing in a wage bargaining model," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(4), pages 434-448, July.

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