Ownership and Use Taxes as Congestion Correcting Instruments
In countries, such as Singapore, that have implemented vehicle congestion policies, recent years have seen a shift towards motor vehicle taxes based on car use. Ownership taxes reduce the number of cars on the road, leaving the price per trip largely unaffected. Use taxes such as fuel taxes and road use charges decrease the price of trips without necessarily penalising vehicle ownership per se. This paper presents a simple general equilibrium model involving trips from residential areas to a central business district, along with modal choice between cars and public transit. Car trips involve fixed costs but have lower variable costs per trip (including convenience costs) then bus trips. Using a calibrated numerical model, we investigate the relative merits of ownership and use taxes. We compare full internalisation of congestion externalities to optimal tax outcomes for the different tax types. In our framework, use taxes restore Pareto optimality since congestion damage rises with more trips. Ownership taxes only partially internalise congestion externalities. However, in terms of revenue-raising ability, the marginal excess burdens of ownership taxes in the neighbourhood of optimal taxes are typically lower than use taxes. This is because marginal increases in ownership taxes take away part of the surplus accruing to consumers who still choose to travel by car, and thus have less distortion at the margin.
|Date of creation:||May 2001|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Wilson, Paul W., 1992. "Residential location and scheduling of work hours," Journal of Urban Economics, Elsevier, vol. 31(3), pages 325-336, May.
- Paul W. Wilson, 1989. "Scheduling Costs and the Value of Travel Time," Urban Studies, Urban Studies Journal Limited, vol. 26(3), pages 356-366, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8278. 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: ()
If references are entirely missing, you can add them using this form.