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Congestion and tax competition in a parallel network

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  • De Borger, B.
  • Proost, S.
  • Van Dender, K.

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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Suggested Citation

  • De Borger, B. & Proost, S. & Van Dender, K., 2005. "Congestion and tax competition in a parallel network," European Economic Review, Elsevier, vol. 49(8), pages 2013-2040, November.
  • Handle: RePEc:eee:eecrev:v:49:y:2005:i:8:p:2013-2040
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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