Externalities and partial tax reform: Does it make sense to tax road freight (but not passenger) transport?
Externalities such as pollution and road congestion are jointly produced by the use of intermediate inputs by firms and the consumption of final goods by households. Remarkably, to cope with such externalities policy proposals often suggest very partial tax reforms. A pertinent example is the current EU proposal to introduce congestion taxes for freight transport on major roads while, for political or technical reasons, failing to similarly address passenger transport. This paper uses a simple general equilibrium model to explore the effects of such a partial tax reform in a second-best setting. The theoretical model shows that the welfare effect of higher freight taxes is positive, unless passenger transport is severely under-taxed and the tax reform attracts substantially more passenger transport. Moreover, the optimal freight tax may be below or above marginal external cost; the former holds if passenger transport is under-taxed and the freight tax does not strongly affect labour supply. Budgetary neutral tax reform exercises with a numerical simulation model for the UK suggest that, under a wide variety of parameter values, higher freight transport taxes are indeed welfare increasing. The welfare gain of freight tax reform rises with the level of the passenger tax, but the optimal freight tax declines at higher taxes on passenger transport. Substantial net benefits of tax reform are obtained only under labour tax recycling of the revenues.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: Prinsstraat 13, B-2000 Antwerpen|
Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
More information through EDIRC
References listed on IDEAS
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.:
- Parry, Ian & Bento, Antonio, 2000.
"Estimating the Welfare Effect of Congestion Taxes: The Critical Importance of Other Distortions within the Transport System,"
dp-00-51, Resources For the Future.
- Parry, Ian W. H. & Bento, Antonio, 2002. "Estimating the Welfare Effect of Congestion Taxes: The Critical Importance of Other Distortions within the Transport System," Journal of Urban Economics, Elsevier, vol. 51(2), pages 339-365, March.
- Parry, Ian & Small, Kenneth, 2002.
"Does Britain or the United States Have the Right Gasoline Tax?,"
dp-02-12-, Resources For the Future.
- Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
- Bruno De Borger & Stef Proost (ed.), 2001. "Reforming Transport Pricing in the European Union," Books, Edward Elgar, number 1822.
- Kenneth A. Small & Clifford Winston & Jia Yan, 2005. "Uncovering the Distribution of Motorists' Preferences for Travel Time and Reliability," Econometrica, Econometric Society, vol. 73(4), pages 1367-1382, 07.
- DE BORGER, Bruno, . "Commuting, congestion tolls and noncompetitive labour markets: Optimal congestion pricing in a wage bargaining model," Working Papers 2006014, University of Antwerp, Faculty of Applied Economics.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November.
- Richard Arnott, 2001. "The Economic Theory of Urban Traffic Congestion: A Microscopic Research Agenda," Boston College Working Papers in Economics 502, Boston College Department of Economics.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
- 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 645-71, December.
- Parry, Ian W.H. & Bento, Antonio Miguel R., 1999. "Revenue recycling and the welfare effects of road pricing," Policy Research Working Paper Series 2253, The World Bank.
- Parry, Ian & Bento, Antonio, 1999. "Revenue Recycling and the Welfare Effects of Road Pricing," Discussion Papers dp-99-45, Resources For the Future.
- Small, Kenneth A. & Yan, Jia, 2001.
"The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation,"
Journal of Urban Economics,
Elsevier, vol. 49(2), pages 310-336, March.
- Small, Kenneth & Yan, Jia, 2000. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," Discussion Papers dp-00-08, Resources For the Future.
- Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
- Small, K.A. & Yan, J., 1999. "The Value of "Value Princing" of Roads: Second-Best Pricing and Product Differentiation," Papers 99-00-02, California Irvine - School of Social Sciences.
When requesting a correction, please mention this item's handle: RePEc:ant:wpaper:2006017. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joeri Nys)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.