| This paper uses analytical and numerical models to illustrate how the presence of other distortions within the transport system changes the overall welfare effect of a congestion tax. These other distortions include a transit fare subsidy, congestion on competing (unpriced) routes, accident externalities, gasoline taxes, and pollution externalities. Each of these pre-existing distortions can substantially alter the welfare effect of a congestion tax that would be predicted by a first-best analysis. If congestion taxes encourage travel on other congested routes, they can produce sizeable indirect welfare losses. In addition, induced reductions in the demand for gasoline can lead to substantial welfare losses when, as appears to be the case for European... |
