Taxes, traffic jam and spillover in the metropolis

Tidiane Ly ()
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Tidiane Ly: Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France; Institute of Economics (IdEP), Faculty of Economics, Università della Svizzera italiana

No 1925, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper studies local governments' public policies in a metropolitan area plagued by traffic congestion, where both residents and workers consume local public goods. We develop a new spatial sub-metropolitan tax competition model which features a central city surrounded by suburban towns linked by mobile capital and mobile residents who commute to work. We show that Pareto-efficiency is achieved if towns can retain their workers using labor subsidies. Otherwise, traffic congestion in the city is inefficiently high and local governments respond by setting inefficient public policies: (1) the city over-taxes capital and under-taxes residents, which leads to too little capital and too many residents in the city; (2) local public goods are under-provided in the city and over-provided in the towns.

Keywords: Tax competition; Urban economics; Traffic congestion; Public goods; Mobility (search for similar items in EconPapers)
JEL-codes: H71 H72 R50 R51 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-pbe, nep-tre and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1925

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