Taxes, traffic jam and spillover in the metropolis

Tidiane Ly
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Tidiane Ly: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique, USI - Università della Svizzera italiana = University of Italian Switzerland

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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)
Date: 2019
New Economics Papers: this item is included in nep-reg, nep-tre and nep-ure
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02283118v1
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