Commuting, transport tax reform and the labour market: Employer-paid parking and the relative efficiency of revenue recycling instruments

In this paper we study the welfare effects of a budgetary neutral increase in taxes on car commuters in a model that takes into account the presence of employer-paid parking at the workplace. Results include the following. First, we find that the presence of employer-paid parking substantially increases the welfare effect of such a tax reform, independent of the use of the revenues. The intuition is that congestion taxes not only correct congestion externalities, they also reduce the inefficiency caused by employer-paid parking. Second, different congestion effects of alternative recycling instruments and the presence of employer-paid parking jointly imply that recycling the tax revenues via higher public transport subsidies may yield much more favourable welfare effects than previously believed. It can easily outperform recycling the tax revenues via lower labour taxes. Third, cashing out parking costs to public transport users is found to generate substantial positive welfare effects. The theoretical predictions are illustrated using a numerical model calibrated on Belgian data.