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Congestion and tax competition in a parallel network

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  • DE BORGER, Bruno
  • PROOST, Stef
  • VAN DENDER, Kurt

Abstract

The purpose of this paper is to study the effects of tolling road use on a parallel road network where each link can be tolled by a different government. Using both theoreticaland numericalmo dels, the paper analyses the potential tax competition between countries that each maximise the surplus of local users plus tax revenues in controlling local and transit transport. Three types of tolling systems are considered: (i) toll discrimination between local traffic and transit, (ii) only uniform tolls on local and transit transport are acceptable, (iii) tolls on local users only. The results suggest that the welfare effects of introducing transit tolls are large, but that differentiation of tolls between local and transit transport as compared to uniform tolls does not yield large welfare differences. Also, the welfare effects of toll cooperation between countries are relatively small in comparison with the welfare gains of non-cooperative tolling of transit. The numerical model further illustrates the effects of different transit shares and explicitly considers the role of asymmetries between countries. Highertransit shares strongly raise the transit toll and slightly decrease local tolls. With asymmetric demands, the welfare gains of introducing differentiated tolling rise strongly for the country with lower local demand.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004018.

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Date of creation: 00 Apr 2004
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Handle: RePEc:cor:louvco:2004018

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Keywords: congestion pricing; transit traffic;

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References

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  1. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
  2. 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.
  3. Hans-Werner Sinn, 2001. "The New Systems Competition," CESifo Working Paper Series 623, CESifo Group Munich.
  4. Erik T. Verhoef & Kenneth A. Small, 1999. "Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," Tinbergen Institute Discussion Papers 99-066/3, Tinbergen Institute.
  5. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
  6. David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Working Papers 200102, University of Minnesota: Nexus Research Group.
  7. 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.
  8. Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November.
  9. Richard J. Arnott & Ronald E. Grieson, 1978. "Optimal Fiscal Policy for State and Local Government," Working Papers 291, Queen's University, Department of Economics.
  10. Liu, Louie Nan & McDonald, John F., 1998. "Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model," Journal of Urban Economics, Elsevier, vol. 44(3), pages 352-366, November.
  11. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  12. Braid, Ralph M., 1996. "Peak-Load Pricing of a Transportation Route with an Unpriced Substitute," Journal of Urban Economics, Elsevier, vol. 40(2), pages 179-197, September.
  13. Parry, Ian W. H., 2003. "How large are the welfare costs of tax competition?," Journal of Urban Economics, Elsevier, vol. 54(1), pages 39-60, July.
  14. Robin Lindsey & André de Palma, 1997. "Private Toll Roads: A Dynamic Equilibrium Analysis," Tinbergen Institute Discussion Papers 97-057/3, Tinbergen Institute.
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