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Cost-benefit rules for transport projects when labor supply is endogenous and taxes are distortionary

  • Fosgerau, Mogens
  • Pilegaard, Ninette

We embed a stylized traffic model within a general equilibrium model in which labor supply is endogenous and income taxes are distortionary. Within this framework we derive simple rules for performing a cost-benefit analysis that can be applied knowing only the output of the traffic model and a factor that accounts for the labor market distortion in a consistent manner. Thus the rules that we derive should be applicable in the large number of cost-benefit analyses that are performed based on the output of traffic models. Such analyses are routinely performed and guide the allocation of a large share of public investment in many countries of the world as well as the assessment of policies such as road user charging. We find that the rules for leisure transport are exactly the same as in a conventional CBA that includes the marginal cost of public funds. For business travel and commuting we find new rules as a result of the assumption that transport costs have the same distortionary effect as income taxes.

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File URL: http://mpra.ub.uni-muenchen.de/3902/1/MPRA_paper_3902.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3902.

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Date of creation: 18 Jun 2007
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Handle: RePEc:pra:mprapa:3902
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  1. Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
  2. Pilegaard, Ninette & Fosgerau, Mogens, 2008. "Cost benefit-analysis of a transport improvement in the case of search unemployment," MPRA Paper 10037, University Library of Munich, Germany.
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