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Cost-benefit analysis of transport investments in distorted economies

  • Calthrop, Edward
  • De Borger, Bruno
  • Proost, Stef

This paper deals with cost-benefit analysis of investment in transport infrastructure. Its contribution is twofold. Firstly, we develop a general equilibrium model to explore the impact of a small budgetary-neutral investment in transport infrastructure in a second-best setting, where other markets in the economy are distorted by taxes or external costs. The model incorporates different transport modes that are used both for intermediate inputs (freight) and for final consumption (passenger travel). An intuitive operational expression for the net economic benefit of an investment is derived that depends on the way the investment is financed. This expression generalizes recent findings in the literature. Secondly, we illustrate the results numerically using a small example. Our findings show that both the specific financing instrument used and the labour market consequences may have large implications for the net benefits of transport investments. Significant errors may be made in limiting cost-benefit analysis to transport markets only.

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Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 44 (2010)
Issue (Month): 7 (August)
Pages: 850-869

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Handle: RePEc:eee:transb:v:44:y:2010:i:7:p:850-869
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  1. Bovenberg, A.L. & van der Ploeg, F., 1992. "Environmental policy, public finance and the labour market in a second-best world," Discussion Paper 1992-43, Tilburg University, Center for Economic Research.
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  8. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
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  14. Stéphane Gauthier & Guy Laroque, 2008. "Separability and public finance," IFS Working Papers W08/07, Institute for Fiscal Studies.
  15. Stef Proost & Akshaya Sen, 2005. "Urban Transport Pricing Reform With Two Levels Of Government," Energy, Transport and Environment Working Papers Series ete0503, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  16. Liu, Liqun, 2003. "A marginal cost of funds approach to multi-period public project evaluation: implications for the social discount rate," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1707-1718, August.
  17. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
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