Abstract
I examine road taxes in a polycentric city where congestion coexists with housing supply restrictions. Despite the quantity distortion that housing supply constraints cause, I show that the socially optimal tax for using a road is still its marginal external cost. However, the artificial housing scarcity generates potential profits, which are either accrued by the construction sector or absorbed by raising land prices. If land rents and developer profits are not fully recycled within the urban area, the Pigouvian road tax ceases to maximize the welfare of that area. To maximize local welfare, road tolls should then lie below (above) their Pigouvian level insofar as they increase (decrease) housing demand in areas where supply cannot be adjusted upwards. I derive analytical formulas for the impact of other spatially relevant aspects on the optimal road tax. Property taxes and spatially invariant lump-sum transfers can both render the Pigouvian rule for taxing road externalities suboptimal.
| Original language | English |
|---|---|
| Article number | 100324 |
| Pages (from-to) | 1-21 |
| Number of pages | 21 |
| Journal | Economics of Transportation |
| Volume | 35 |
| Early online date | 5 Sept 2023 |
| DOIs | |
| Publication status | Published - Sept 2023 |
Bibliographical note
Funding Information:The paper builds upon an earlier contribution coauthored by Professors Erik T. Verhoef and Jos van Ommeren, to which I am grateful and indebted. The research in the precursor of this paper was funded by the Netherlands Organization for Scientific Research (NWO grant 434-09-021) and to the European Research Council (AdG grant 246969 OPTION). Earlier versions of the paper were presented in a special session of the Urban Economics Association hosted by the North American Regional Science Council conference (Atlanta, 2013) and in the annual conference of the International Transport Economics Association (Toulouse, 2014). I would like to thank Professors Jan Brueckner, David Pines, Leonardo Basso and Tatsuhito Kono for the constructive discussions and insights they provided in these events. The inspiring discussions with Professor Alex Anas, as well as the detailed comments by Professors Robin Lindsey and Yves Zenou are highly appreciated.
Funding Information:
The paper builds upon an earlier contribution coauthored by Professors Erik T. Verhoef and Jos van Ommeren, to which I am grateful and indebted. The research in the precursor of this paper was funded by the Netherlands Organization for Scientific Research (NWO grant 434-09-021 ) and to the European Research Council (AdG grant 246969 OPTION). Earlier versions of the paper were presented in a special session of the Urban Economics Association hosted by the North American Regional Science Council conference (Atlanta, 2013) and in the annual conference of the International Transport Economics Association (Toulouse, 2014). I would like to thank Professors Jan Brueckner, David Pines, Leonardo Basso and Tatsuhito Kono for the constructive discussions and insights they provided in these events. The inspiring discussions with Professor Alex Anas, as well as the detailed comments by Professors Robin Lindsey and Yves Zenou are highly appreciated.
Publisher Copyright:
© 2023 Elsevier Ltd
Keywords
- Congestion
- Double dividend
- Housing supply constraints
- Profits
- Rationing
- Second best