Congestion pricing, infrastructure investment and redistribution

Russo, Antonio (2011): Congestion pricing, infrastructure investment and redistribution.

Abstract

We study congestion pricing by a government that has redistributive concerns, in the presence of optimal income taxation. Individuals differ in (unobservable) earning ability and consumption technology for commodities using a congestible network (e.g. roads, Internet). We find, assuming separable preferences, that when efficiency of consumption technology is either invariant or postively correlated with earning ability, low ability individuals should face higher marginal congestion charges than high ability ones. Moreover, reducing congestion (by raising charges or expanding network capacity) enables government to increase redistribution. We also find that means tested congestion pricing may be necessary to implement the second-best allocation.

• Item Type: MPRA Paper
• Language: English
• Keywords: congestion pricing; income taxation; redistribution; infrastructure investment
• Subjects: H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R41 - Transportation: Demand, Supply, and Congestion ; Travel Time ; Safety and Accidents ; Transportation Noise; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies

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