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Taxes, traffic jam and spillover in the metropolis

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  • Tidiane Ly

    (USI - Università della Svizzera italiana = University of Italian Switzerland)

Abstract

This paper studies local governments' public policies in a metropolitan area plagued by traffic congestion, where both residents and workers consume local public goods. We develop a new spatial sub-metropolitan tax competition model which features a central city surrounded by suburban towns linked by mobile capital and mobile residents who commute to work. We show that Pareto-efficiency is achieved if towns can retain their workers using labor subsidies. Otherwise, traffic congestion in the city is inefficiently high and local governments respond by setting inefficient public policies: (1) the city over-taxes capital and under-taxes residents, which leads to too little capital and too many residents in the city; (2) local public goods are under-provided in the city and over-provided in the towns.

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  • Tidiane Ly, 2019. "Taxes, traffic jam and spillover in the metropolis," Working Papers halshs-02275672, HAL.
    • Handle: RePEc:hal:wpaper:halshs-02275672
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02275672
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    References listed on IDEAS

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