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Congestion pricing, infrastructure investment and redistribution

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  • Russo, Antonio

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.

Suggested Citation

  • Russo, Antonio, 2011. "Congestion pricing, infrastructure investment and redistribution," MPRA Paper 28932, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:28932
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    References listed on IDEAS

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    1. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    2. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 1993_020, Oslo University, Department of Economics.
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    More about this item

    Keywords

    congestion pricing; income taxation; redistribution; infrastructure investment;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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