Optimal government policy is considered in a second-best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account. The theoretical results of the optimal tax literature are adapted using the concept of the net social Pigouvian tax. An illustrative AGE model uncovers the relative importance of its components. The model demonstrates that the level of the externality tax does not depend strongly on distribution concerns, as reoptimization of the other taxes ensures that the income distribution objective is reached. The model also allows us to study the interaction between externality taxes and public abatement.
The paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods. It considers three types of policy instruments: the indirect taxes, the uniform poll transfer and public abatement. This extends the framework set up by Ahmad and Stern (1984), Bovenberg and de Mooij (1994) and Schöb (1996). The theoretical model is illustrated for a specific externality, namely congestion caused by peak car transport.
There are two main sources of inefficiency in urban transport markets. First, transport prices fail to reflect the external costs of travel, notably peak-period external congestion costs. Secondly, a large percentage of drivers park for free, particularly at the workplace. Economic theory suggests, in the absence of other market distortions, that efficiency can be restored with a perfectly differentiated external cost charge in conjunction with resource-cost pricing of all parking spots. In practice, urban transport authorities can try various combinations of imperfect road-pricing systems and imperfect parking charges. One example might be the use of a single cordon charge to enter a city, together with a tax on workplace parking. In this paper, we use a numerical simulation model of an urban transport market to examine the efficiency gains from various parking policies with and without a simple cordon system. As would be expected, we show that pricing of parking and road use need to be simultaneously determined. As the level of the parking fee becomes more efficient, or as the number of free parkers is reduced, so the level of optimally determined cordon charge falls. Additionally, by introducing a cordon charge, the level of the optimally determined parking fee falls. The model results show that the second-best pricing of all parking spaces produces higher welfare gains than the use of a single-ring cordon scheme, though marginally lower than the combination of a cordon charge with resource-cost pricing of parking spots.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.