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Congestion and tax competition in a parallel network

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Author Info

  • Bruno De Borger

    () (Department of Economics, University of Antwerp)

  • Stef Proost

    () (K.U.Leuven, C.E.S., Energy, Transport and Environment)

  • Kurt Van Dender

    () (Department of Economics, University of California at Irvine)

Abstract

The purpose of this paper is to study tax competition on a parallel road network when different governments have tolling authority on the different links of the network. Reflecting many current situations in Europe, each link is used by both local and transit traffic; moreover, transit has a choice of route. Each government maximises the surplus of local users plus total tax revenues in controlling local and transit transport. Three types of tolling systems are considered: (i) toll discrimination between local traffic and transit, (ii) uniform tolls on local and transit transport, (iii) local tolls 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. It is also found that the welfare effects of coordination between countries are relatively small in comparison with the welfare gains of tolling transit. The numerical model further illustrates the effects of different transit shares and explicitly considers the role of asymmetries between countries. Higher transit shares strongly raise the Nash equilibrium 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 Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0309.

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Length: 51 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:ete:etewps:ete0309

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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," Journal of Urban Economics, Elsevier, vol. 49(2), pages 310-336, March.
  2. 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.
  3. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
  4. Calthrop, E & De Borger, Bruno & Proost, Stef, 2003. "Tax reform for dirty intermediate goods: Theory and an application to the taxation of freight transport," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/119414, Katholieke Universiteit Leuven.
  5. Verhoef, E.T. & Small, K.A., 1999. "Product Differentiation on Roads Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," Papers 99-00-01, California Irvine - School of Social Sciences.
  6. David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(2), pages 223-237, May.
  7. 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.
  8. Richard J. Arnott & Ronald E. Grieson, 1978. "Optimal Fiscal Policy for State and Local Government," Working Papers 291, Queen's University, Department of Economics.
  9. 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.
  10. 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.
  11. Robin Lindsey & André de Palma, 1997. "Private Toll Roads: A Dynamic Equilibrium Analysis," Tinbergen Institute Discussion Papers 97-057/3, Tinbergen Institute.
  12. Hans-Werner Sinn, 2001. "The New Systems Competition," CESifo Working Paper Series 623, CESifo Group Munich.
  13. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
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