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Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad

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  • Ioannis Tikoudis

    (VU University Amsterdam, the Netherlands)

Abstract

This paper examines the properties of taxes applied in the road links of a polycentric network and their interaction with a spatially-invariant tax on labor income. With the use of a theoretical model, the total welfare change from a revenue-neutral swap between the tax in an arbitrary road link and the distortionary labor tax is decomposed into three distinct effects. These are shown to be the network counterparts of the tax-interaction, revenue-recycling and Pigouvian effects of traditional double-dividend theory. Subsequently, these effects are approximated in a numerical version of the model, used to simulate various tax schemes imposed during the peak commuting hours. With the elasticities of labor supply and transport at plausible values, the results suggest that a cut in the distortionary tax, financed by the road tax revenue, is an essential policy element, independent of the applied tax scheme. In the context of a revenue-neutral tax swap, marginal external cost pricing and the flat kilometer tax are shown to be particularly efficient at low rates of the distortionary tax. At high rates, however, a system of cordon tolls around the major employment nodes of the network is shown to be more effective. With the transportation cross-elasticities at the lower bound, the results show that marginal external cost pricing may be welfare-reducing even when its revenue is recycled in a tax cut manner. At the same time, other archetype externality pricing schemes produce gains only in very low levels of the distortionary tax.

Suggested Citation

  • 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.
  • Handle: RePEc:tin:wpaper:20150085
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    References listed on IDEAS

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    More about this item

    Keywords

    labor tax; externality taxation; tax-interaction; double-dividend; network; general equilibrium;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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