Erik T. Verhoef, Free University Amsterdam, Amsterdam, The Netherlands
Traffic Congestion and Spatial Labour markets (assigned to theme
This paper considers the interactions between congestion and labour supply, and between congestion pricing and distortionary labour taxation, in a monocentric city model with endogenous residential density and endogenous labour supply. From prior non-spatial studies, the pre-existence of distortionary labour taxes is known to affect the optimal design of a congestion tolling scheme and of the revenue allocation scheme. Congestion tolls discourage labour supply, but the use of revenues for lowering labour taxes for example has the opposite effect. The definition of the optimal policy is therefore a matter of second-best analysis. This general principle remains valid in a spatial setting, but the spatial effects of congestion pricing upon urban density are seen to have a dampening effect upon the negative first-order spill-over of congestion pricing upon the functioning of the spatial labour market. The paper explores these issues both from an analytical perspective and using a numerical simulation model.
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