Social Benefits and Private Costs of Driving Restriction Policies: The Impact of Madrid Central on Congestion, Pollution, and Consumer Spending

Jose Enrique, Ricard Gil, Felix Holub and Guillermo Uriz

Journal of the European Economic Association, 2023, vol. 21, issue 3, 1227-1267

Abstract: Low Emission Zones are defined areas within a city where driving restrictions are introduced with the aim to reduce pollution, but they may also unintentionally distort consumer spending decisions. By increasing transportation costs to ban-affected areas, driving restrictions could discourage spending in stores of those areas. This paper empirically evaluates the effects of a driving restriction regulation in Madrid, Spain, known as Madrid Central. First, using a difference-in-differences identification strategy, we find an immediate decrease of 19% in pollution and of 16% in congestion with pollution dropping further once fines were levied. Second, we rely on credit card transaction data to show consumers affected by the regulation reduced their brick-and-mortar spending in the regulated area by 21%. Finally, because affected consumers partially substitute their consumption spending from brick-and-mortar to online shopping, we find suggestive evidence that e-commerce may smooth the impact of changes in transportation costs due to environmental regulations.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:21:y:2023:i:3:p:1227-1267.

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