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Taxes, traffic jam and spillover in the metropolis

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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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Dates and versions

halshs-02275672 , version 1 (01-09-2019)

Identifiers

  • HAL Id : halshs-02275672 , version 1

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Tidiane Ly. Taxes, traffic jam and spillover in the metropolis. 2019. ⟨halshs-02275672⟩
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