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Journal of Urban Economics
Article . 2015 . Peer-reviewed
License: Elsevier TDM
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Article . 2013 . Peer-reviewed
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On Revenue Recycling and the Welfare Effects of Second-Best Congestion Pricing in a Monocentric City

Authors: Ioannis Tikoudis; Erik T. Verhoef; Jos N. van Ommeren;

On Revenue Recycling and the Welfare Effects of Second-Best Congestion Pricing in a Monocentric City

Abstract

This paper examines congestion taxes in a monocentric city with pre-existing labor taxation. When road toll revenue is used to finance labor tax cuts, 35% of the optimal road tax in our numerical model does not reflect marginal external congestion costs, but rather functions as a Ramsey-Mirrlees tax, i.e. an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax. This adds a quite different motivation to road pricing, since welfare gains can be produced even in absence of congestion. We find that the optimal road tax is non-monotonic across space, reflecting the different impacts of labor supply elasticity and marginal utility of income, which both vary over space. The relative efficiencies of some archetype second-best pricing schemes (cordon toll, flat kilometer tax) are high (84% and 70% respectively). When road toll revenue is recycled lump-sum, the optimal toll lies below its Pigouvian level. Extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing.

Country
Netherlands
Keywords

revenue recycling, R41, ddc:330, H23, Second-best road pricing, R14, R48, SDG 11 - Sustainable Cities and Communities, R13, Second-best road pricing, revenue recycling, monocentric city, monocentric city, H76, J20, jel: jel:J20, jel: jel:H23, jel: jel:H76, jel: jel:R41, jel: jel:R14, jel: jel:R13, jel: jel:R48

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    This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
    39
    popularity
    This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
    Top 10%
    influence
    This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
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    impulse
    This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
39
Top 10%
Top 10%
Average
bronze