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Congestion pricing, infrastructure investment and redistribution

  • Russo, Antonio
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    We study congestion pricing by a government that has redistributive concerns, in the presence of optimal income taxation. Individuals differ in (unobservable) earning ability and consumption technology for commodities using a congestible network (e.g. roads, Internet). We find, assuming separable preferences, that when efficiency of consumption technology is either invariant or postively correlated with earning ability, low ability individuals should face higher marginal congestion charges than high ability ones. Moreover, reducing congestion (by raising charges or expanding network capacity) enables government to increase redistribution. We also find that means tested congestion pricing may be necessary to implement the second-best allocation.

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    File URL: http://mpra.ub.uni-muenchen.de/28932/1/MPRA_paper_28932.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28932.

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    Date of creation: 15 Feb 2011
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    Handle: RePEc:pra:mprapa:28932
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    1. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    2. Jeffrey K. MacKie-Mason & Hal R. Varian, 1994. "Pricing the Internet," Computational Economics 9401002, EconWPA.
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