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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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  1. Sinn, Hans-Werner, 2004. "The new systems competition," Munich Reprints in Economics 19608, University of Munich, Department of Economics.
  2. Richard J. Arnott & Ronald E. Grieson, 1978. "Optimal Fiscal Policy for State and Local Government," Working Papers 291, Queen's University, Department of Economics.
  3. 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.
  4. David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Working Papers 200102, University of Minnesota: Nexus Research Group.
  5. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
  6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  7. 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.
  8. Verhoef, Erik Teodoor & Small, Kenneth A., 1999. "Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership," ERSA conference papers ersa99pa358, European Regional Science Association.
  9. Robin Lindsey & André de Palma, 1997. "Private Toll Roads: A Dynamic Equilibrium Analysis," Tinbergen Institute Discussion Papers 97-057/3, Tinbergen Institute.
  10. 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.
  11. 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.
  12. Parry, Ian, 2001. "How Large are the Welfare Costs of Tax Competition?," Discussion Papers dp-01-28, Resources For the Future.
  13. 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.
  14. 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.
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