What if commuting has demerit properties?

People spend a lot of their time commuting. Research in health economics indicates that spending time in trac has long run adverse consequences for mental and physical health. Literature suggests that, when making decisions about commuting, the individual might un- derestimate these long run consequences and take them insuciently into consideration. For this reason, we argue that commuting has demerit properties, a so-called internality is involved: decisions at some point in life in uence well-being at a later point in life. From a policymaker's perspective, on top of the demerit aspect, commuting is also associated with an externality. If commuters underestimate the impact on their welfare of commuting, this aggravates also the externality. We propose a way in which both these demerit considerations and the externality can be incorporated into marginal costs of funds (MCF) formulae. The externality in our model both has a direct impact and a behavioural impact on other households' welfare. We calcu- late MCF for the United States to apply the model. We show that the demerit considerations cause rank switches in over half of the States and that an increase in the taxes on commuting accompanied by a decrease in other taxes benefits social welfare.