The Distributional Impacts of Policies for the Control of Transport Externalities.An Applied General Equilibrium Model
AbstractThe paper uses an applied general equilibrium model, calibrated to the situation in Belgium in 1990, to evaluate the welfare effects of small policy changes in the presence of transport externalities. The model incorporates three types of externalities: congestion, which has a feedback effect on the behaviour of the economic agents, air pollution and accidents. The model is used to perform balanced budget incidence simulations in which the marginal cost of public funds is calculated for four alternative policy instruments: a lump sum tax, the labour income tax, the fuel taxes and peak road pricing. For each of these instruments the marginal cost of public funds is calculated. The results of the model are compared with those of a model in which congestion, air pollution and accidents are assumed to remain constant at their initial level. The model contributes to the literature in two ways. First of all, it includes non-identical individuals which allows to analyse the equity effects of the policy reforms. The second contribution is related to the way in which the externalities are modelled: the feedback effect of congestion is explicitly taken into account and the value of a marginal time saving is determined endogenously in the model. The simulations show that the ranking of the instruments in terms of their marginal cost of public funds changes significantly when the effect of the reform on the externalities is taken into account. Secondly, regardless of the way in which the tax revenue is recycled, the welfare gain of peak road pricing is higher than that of the fuel tax. When the externality tax revenue is recycled through the lump sum tax the welfare gains are higher for the poorer than for the richer quintiles. On the other hand, the main beneficiary of revenue recycling through the labour income tax is the richest quintile. Consequently, when the social welfare function gives a higher weight to the welfare of individuals belonging to the poorer quintiles, the distributional impacts of the policy reforms cause the welfare gain to be higher when the revenue is recycled through an increase in the lump sum transfer rather than through a lower labour income tax rate. The link is made with the double dividend literature. A weak double dividend can be realised only when all individuals are given the same welfare weight. However, the inclusion of distributional considerations offers the possibility of realising a strong double dividend for low degrees of inequality aversion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.8.
Date of creation: Jan 1999
Date of revision:
Marginal cost of public funds; Externalities; Equity; Applied general equilibrium model;
Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-06-08 (All new papers)
- NEP-ENE-1999-06-08 (Energy Economics)
- NEP-ENV-1999-06-08 (Environmental Economics)
- NEP-MIC-1999-06-08 (Microeconomics)
- NEP-PBE-1999-06-08 (Public Economics)
- NEP-PUB-1999-06-08 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bovenberg, A.L. & Ploeg, F. van der, 1992.
"Environmental policy, public finance and the labour market in a second-best world,"
1992-43, Tilburg University, Center for Economic Research.
- Bovenberg, A. L. & van der Ploeg, F., 1994. "Environmental policy, public finance and the labour market in a second-best world," Journal of Public Economics, Elsevier, vol. 55(3), pages 349-390, November.
- Bovenberg, A.L. & Van Der Ploeg, F., 1992. "Environmental Policy, Public Finance and the Labour Market in a Second- Best World," Papers 9243, Tilburg - Center for Economic Research.
- Bovenberg, A Lans & van der Ploeg, Frederick, 1992. "Environmental Policy, Public Finance and the Labour Market in a Second-best World," CEPR Discussion Papers 745, C.E.P.R. Discussion Papers.
- Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
- S. Proost & D. Regemorter, 1995. "The double dividend and the role of inequality aversion and macroeconomic regimes," International Tax and Public Finance, Springer, vol. 2(2), pages 207-219, August.
- Bovenberg, A.L. & Mooij, R.A. de, 1994.
"Environmental levies and distortionary taxation,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-152985, Tilburg University.
- Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
- Paul Zagamé & Olivier Beaumais & Katheline Schubert, 1994.
"Équilibre général appliqué et environnement : de nouveaux comportements pour le consommateur et le producteur,"
Presses de Sciences-Po, vol. 0(3), pages 905-916.
- Katheline Schubert & Olivier Beaumais & Paul Zagamé, 1994. "Équilibre général appliqué et environnement : de nouveaux comportements pour le consommateur et le producteur," Revue Économique, Programme National Persée, vol. 45(3), pages 905-916.
- Hansson, Ingemar & Stuart, Charles, 1993. " The Effects of Taxes on Aggregate Labor: A Cross-Country General-Equilibrium Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 311-26.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Keller, Wouter J., 1976. "A nested CES-type utility function and its demand and price-index functions," European Economic Review, Elsevier, vol. 7(2), pages 175-186, February.
- Conrad, K & Schroder, M, 1991. "Demand for Durable and Nondurable Goods, Environmental Policy and Consumer Welfare," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(3), pages 271-86, July-Sept.
- Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
- DeSerpa, A C, 1971. "A Theory of the Economics of Time," Economic Journal, Royal Economic Society, vol. 81(324), pages 828-46, December.
- Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "A General Equilibrium Model for Tax Policy Evaluation," NBER Books, National Bureau of Economic Research, Inc, number ball85-1, October.
- Brendemoen, Anne & Vennemo, Haakon, 1996. " The Marginal Cost of Funds in the Presence of Environmental Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 405-22.
- Glaister, Stephen & Lewis, Davis, 1978. "An integrated fares policy for transport in London," Journal of Public Economics, Elsevier, vol. 9(3), pages 341-355, June.
- Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March.
- Shoven, John B. & Whalley, John, 1977. "Equal yield tax alternatives : General equillibrium computational techniques," Journal of Public Economics, Elsevier, vol. 8(2), pages 211-224, October.
- 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.
- De Jong, G. C., 1990. "An indirect utility model of car ownership and private car use," European Economic Review, Elsevier, vol. 34(5), pages 971-985, July.
- Stiglitz, Joseph E & Dasgupta, P, 1971.
"Differential Taxation, Public Goods and Economic Efficiency,"
Review of Economic Studies,
Wiley Blackwell, vol. 38(114), pages 151-74, April.
- Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers 299, Cowles Foundation for Research in Economics, Yale University.
- Nestor, Deborah Vaughn & Pasurka, Carl Jr., 1995. "Alternative specifications for environmental control costs in a general equilibrium framework," Economics Letters, Elsevier, vol. 48(3-4), pages 273-280, June.
- A. Lans Bovenberg & Lawrence H. Goulder, 1995. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes:General Equilibrium Analyses," NBER Working Papers 5117, National Bureau of Economic Research, Inc.
- Small, Kenneth A., 1983. "The incidence of congestion tolls on urban highways," Journal of Urban Economics, Elsevier, vol. 13(1), pages 90-111, January.
- Carlo Perroni & Randall M. Wigle, 1994. "International Trade and Environmental Quality: How Important Are the Linkages?," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 551-67, August.
- King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
- Ballard, Charles L. & Medema, Steven G., 1993. "The marginal efficiency effects of taxes and subsidies in the presence of externalities : A computational general equilibrium approach," Journal of Public Economics, Elsevier, vol. 52(2), pages 199-216, September.
- Hansson, Ingemar & Stuart, Charles, 1985. "Tax revenue and the marginal cost of public funds in Sweden," Journal of Public Economics, Elsevier, vol. 27(3), pages 331-353, August.
- Don Fullerton & Garth Heutel, 2005.
"The General Equilibrium Incidence of Environmental Taxes,"
NBER Working Papers
11311, National Bureau of Economic Research, Inc.
- Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 571-591, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah).
If references are entirely missing, you can add them using this form.