Taxes, Commuting and Spillover in the Metropolis

55 Pages Posted: 7 Sep 2019 Last revised: 3 Nov 2022

Date Written: October 1, 2022

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.

Keywords: Tax competition, Urban economics, Traffic congestion, Public goods, Mobility

JEL Classification: H71, H72, R50, R51

Suggested Citation

Ly, Tidiane, Taxes, Commuting and Spillover in the Metropolis (October 1, 2022). Available at SSRN: https://ssrn.com/abstract=3446235 or http://dx.doi.org/10.2139/ssrn.3446235

Tidiane Ly (Contact Author)

Syracuse University ( email )

Syracuse, NY 13244
United States

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