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Second-best Urban Tolls in a Monocentric City with Housing Market Regulations

Author

Listed:
  • Ioannis Tikoudis

    (VU University Amsterdam)

  • Erik T. Verhoef

    (VU University Amsterdam)

  • Jos N. van Ommeren

    (VU University Amsterdam)

Abstract

This paper investigates second-best congestion pricing in a monocentric city characterized by distortionary, rigid regulatory mechanisms in the housing market (building height restrictions, zoning and property taxation). The Pigouvian toll is shown to retain its optimality under any setting with quantity restrictions in the housing market. However, the extent of the quantity restriction determines the volume of the welfare gains in a non-monotonic fashion. This finding introduces a warning to cost-benefit analyses: our numerical results suggest that the actual gains of a road tax might be 40% lower than the gains predicted by a model that disregards maximum building height restrictions, and 80% higher than the gains suggested by a model that disregards zoning. In general, this implies that decision making on urban road pricing can ignore quantitative restrictions in the related markets of land, housing and labor insofar as the determination of optimal marginal tax rules is concerned; the tax levels stemming from those rules will be affected by the restrictions. However, this is not the case in the presence of a tax-induced distortion. Introducing an ad- valorem property tax on housing, we show that adjustments of the Pigouvian toll can lead to small, but not negligible welfare gains.

Suggested Citation

  • Ioannis Tikoudis & Erik T. Verhoef & Jos N. van Ommeren, 2015. "Second-best Urban Tolls in a Monocentric City with Housing Market Regulations," Tinbergen Institute Discussion Papers 15-006/VIII, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20150006
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    References listed on IDEAS

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    Cited by:

    1. Ioannis Tikoudis, 2015. "Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad," Tinbergen Institute Discussion Papers 15-085/VIII, Tinbergen Institute, revised 26 Oct 2017.
    2. repec:eee:regeco:v:73:y:2018:i:c:p:217-236 is not listed on IDEAS

    More about this item

    Keywords

    road pricing; building height restrictions; zoning; property tax; monocentric city; cost-benefit analysis;

    JEL classification:

    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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