Conference Agenda

We examine the role of spatial policies on employment, location choices, and labour force participation in markets marked by labour market frictions and spatial externalities. We compare the outcomes of competitive markets with those of a welfare-maximising social planner. Our findings indicate that including local labour force participation as a key component in our model significantly alters optimal spatial policies. This adjustment affects the spatial distribution of workers, labour supply, and overall welfare. Using data from Germany, we show that these optimal policies could increase the labour force, especially among women, by about 2% and improve aggregate welfare by 5%. Ignoring the extensive labour supply margin leads to a substantial underestimation of the effects of fiscal redistribution and the benefits derived from spatial policies.

Research in health economics indicates that spending time in traffic has long run adverse consequences for health. Literature suggests that, when making decisions about commuting, workers underestimate the consequences for their long run health. For this reason, we argue that commuting has demerit properties. From a welfare perspective, on top of the demerit aspect, commuting is also associated with an externality. We derive marginal cost of funds (MCF) expressions incorporating externalities and demerit aspects. We calculate the MCF for the 51 US states, for a tax on commuting, income taxation, and a poll transfer. We show that both the externality and the demerit considerations cause rank switches in over half of the States and that an increase in the taxes on commuting accompanied by a decrease in other taxes benefits social welfare.

This paper uses a novel GPS-coded dataset for more than three million car trips in the four largest German cities to measure the efficiency losses from using uniform fuel taxes as a second-best optimal tax to reduce traffic congestion. We estimate the short-run price elasticity of vehicle-kilometres travelled (VKT) across different hours of the day from a panel gravity equation. Identification of the price elasticity relies on comparing VKT changes between granular trip origin and destination pairs within each city. We find that the VKT price elasticity differs strongly across trips taken at different hours of the day, and that this elasticity correlates with contributions to the congestion externality. Using a policy simulation, we show that 52% of the deadweight loss of the congestion externality remains after levying a uniform fuel tax.

The paper discusses the tax treatment of commuting where wages and housing cost vary across locations. An income tax distorts the locational choices of agents, who dislike commuting and have preferences for place of residence. Further distortion issues arise where housing is tax favoured, as is often the case. Wages, housing cost and commuting cost determine how subsidising or taxing commuting affects behaviour and social efficiency. A subsidy encourages commuting and induces agents to choose a more favourable living place. The analysis clarifies the circumstances in which the subsidy alleviates or exacerbates the tax distortions. The distributional impact depends on the effects of wages on commuting. An empirical illustration based on Norwegian data supplements the theoretical analysis and shows how one can infer efficiency effects of responses to subsidies on commuting.