Taxes, traffic jam and spillover in the metropolis

Tidiane Ly ()
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Tidiane Ly: Institute of Economics (IdEP), Università della Svizzera Italiana (USI), Lugano, Switzerland

IdEP Economic Papers from USI Università della Svizzera italiana

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)
Pages: 46 pages
Date: 2019-09
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-hea and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lug:wpidep:1903

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