Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107878
Authors: 
Tikoudis, Ioannis
Verhoef, Erik T.
van Ommeren, Jos N.
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-006/VIII
Abstract: 
This paper investigates second-best congestion pricing in a monocentric city characterized by distortionary, rigid regulatory mechanisms in the housing market (building height restrictions, zoning and property taxation). The Pigouvian toll is shown to retain its optimality under any setting with quantity restrictions in the housing market. However, the extent of the quantity restriction determines the volume of the welfare gains in a non-monotonic fashion. This finding introduces a warning to cost-benefit analyses: our numerical results suggest that the actual gains of a road tax might be 40% lower than the gains predicted by a model that disregards maximum building height restrictions, and 80% higher than the gains suggested by a model that disregards zoning. In general, this implies that decision making on urban road pricing can ignore quantitative restrictions in the related markets of land, housing and labor insofar as the determination of optimal marginal tax rules is concerned; the tax levels stemming from those rules will be affected by the restrictions. However, this is not the case in the presence of a tax-induced distortion. Introducing an ad- valorem property tax on housing, we show that adjustments of the Pigouvian toll can lead to small, but not negligible welfare gains.
Subjects: 
road pricing
building height restrictions
zoning
property tax
monocentric city
cost-benefit analysis
JEL: 
R48
R52
R13
H21
H23
D61
Document Type: 
Working Paper

Files in This Item:
File
Size
415.93 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.