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Assessment of the introduction of road pricing using a Computable General Equilibrium model

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  • Knud Jørgen Munk

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

The introduction of road pricing has important budgetary and income distributional consequences. In countries like Denmark, due to high marginal rates of taxation, raising government revenue and redistributing income is associated with substantial distortionary and administrative costs. This paper argues that an evaluation of the introduction of road pricing needs to take into account not only the effects on congestion and on the environment, but also the effects on the government’s budget and the income distributional consequences and therefore should be undertaken within a general equilibrium framework. A stylized Computable General Equilibrium (CGE) model which represents the interaction of the consumption of transport and of traffic congestion with leisure is used to illustrate this point. Model simulations show that the introduction of road pricing may be associated with a double dividend and make it desirable to reduce transport infrastructure, and furthermore, although decreasing road congestion, increase the environmental damage.

Suggested Citation

  • Knud Jørgen Munk, 2005. "Assessment of the introduction of road pricing using a Computable General Equilibrium model," Economics Working Papers 2005-23, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2005-23
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    File URL: ftp://ftp.econ.au.dk/afn/wp/05/wp05_23.pdf
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    References listed on IDEAS

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    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
    2. Parry, Ian W H & Bento, Antonio, 2001. " Revenue Recycling and the Welfare Effects of Road Pricing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 645-671, December.
    3. Knud Jørgen Munk, "undated". "Administrative Costs and the "Double Dividend"," EPRU Working Paper Series 00-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    4. De Borger, Bruno & Van Dender, Kurt, 2003. "Transport tax reform, commuting, and endogenous values of time," Journal of Urban Economics, Elsevier, vol. 53(3), pages 510-530, May.
    5. Dixit, A. K. & Munk, K. J., 1977. "Welfare effects of tax and price changes : A correction," Journal of Public Economics, Elsevier, vol. 8(1), pages 103-107, August.
    6. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
    7. Knud Jørgen Munk, "undated". "What Determines the Optimal Commodity Tax Structure from an Intuitive Point of View?," EPRU Working Paper Series 02-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    8. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
    9. 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 261-279, June.
    10. 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, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    11. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
    12. Sandmo, Agnar, 2000. "The Public Economics of the Environment," OUP Catalogue, Oxford University Press, number 9780198297987.
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    Cited by:

    1. MUNK, Knud J., 2011. "Optimal taxation in the presence of a congested public good and an application to transport policy," CORE Discussion Papers 2011057, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Dorothée Boccanfuso & Marcelin Joanis & Mathieu Paquet & Luc Savard, 2015. "The impact of infrastructure on productivity: new estimates for Québec," Cahiers de recherche Classification-JEL: C13, , Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.

    More about this item

    Keywords

    Project evaluation; optimal taxation; externalities; separability; road pricing; CGE models; double dividend;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other

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