Productivity benefits of urban transportation megaprojects: A general equilibrium analysis of «Grand Paris Express»

The «Grand Paris Express» (GPE) reduces road congestion, a negative externality (Walters, 1961; Vickrey, 1963); while inducing job densification, which improves total factor productivity (TFP), the source of a positive externality (Marshall, 1890). To parse out the effects and interaction of these externalities empirically, we use a spatial general equilibrium model treating transportation, output, labor, real estate and land markets. The TFP externality reduces marginal costs and output prices, benefitting consumers, including those importing from the region. Wages and rents increase but only after normalization by an output price index. The unsubsidized TFP externality adds importantly to the GPE's social benefit-to-cost ratio, despite causing fiscal losses from nominal income tax, sales tax and fuel tax revenues. Pigouvian congestion tolling raises long run welfare, and although toll revenue exceeds thrice the GPE's direct cost, it recovers only 62% of the direct cost plus the fiscal losses in the short run, but only 54% in the long run when the fiscal losses are larger. In the presence of distortionary taxation, consumers elsewhere who import from the region, and the unsubsidized TFP externality, charging more than Pigouvian congestion tolls improves overall social welfare but reduces the welfare of the in-region consumers.