How Should Passenger Travel in Mexico City Be Priced?
49 Pages Posted: 20 Aug 2008 Last revised: 1 Sep 2013
Date Written: June 15, 2008
This paper uses an analytical-simulation model to examine the optimal extent and welfare effects of pricing reforms for passenger transportation in Mexico City. The model incorporates travel by auto, microbus, public bus, and rail, plus externalities from local and global air pollution, traffic congestion, and road accidents. In our benchmark case, the optimal gasoline tax is $2.72 (29.6 pesos) per gallon, or 16 times the current tax. However, a per-mile toll would reduce traffic congestion, the largest externality, more directly, and we put the optimized auto toll at 20.3 cents per mile. Tolls should also be imposed on microbuses even though the welfare gains are relatively modest, as are those from reforming public transit fares.
Keywords: gasoline taxes, mileage tolls, transit subsidy, pollution, congestion, Mexico City, welfare effects
JEL Classification: R48, H21, H23
Suggested Citation: Suggested Citation