Second-best urban tolling with distributive concerns

Andrea Diaz and Stef Proost

Economics of Transportation, 2014, vol. 3, issue 4, 257-269

Abstract: This paper analyzes the optimal urban congestion toll in a second-best setting where only one road in a network can be tolled. Both heterogeneity in labor productivity and income distribution concerns are considered. The optimal toll balances two types of considerations. The first consideration is the correction of the congestion externality on the tolled road given the distortion on the non-tolled roads, while the second is the equity consideration that takes into account which income group uses the tolled road and how toll revenues are spent. Both separating and pooling equilibria are analyzed for two alternative uses of toll revenues: poll transfers and labor-tax cuts. Using numerical simulations, we show that equity concerns can lead a government to prefer inefficient toll levels and recycling via poll transfers rather than via labor tax reductions.

Keywords: Tax reform; Congestion pricing; Urban tolls (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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Working Paper: Second-best urban tolling with distributive concerns (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecotra:v:3:y:2014:i:4:p:257-269

DOI: 10.1016/j.ecotra.2015.02.003

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