The cost of congestion and the benefits of congestion pricing: A general equilibrium analysis

Abstract

The benefits of congestion pricing are examined with a spatially detailed computable general equilibrium model of the Greater LA region. The model treats choices of roads on a network, of driving or public transit, of residence and job location, of non-work trip patterns, of housing type and size; vacancies and new construction, production, interindustry trade and exports. The aggregate benefit of pricing LA County road congestion increases 2.7 fold when the toll revenue is recycled to cut the income tax of the poorer LA County workers while maintaining region-wide tax revenue neutrality. Consumers get 66% of the aggregate benefit and landlords 41%, while importers suffer losses equal to 7% of the aggregate benefit. Gross regional product increases by 1.34%. The aggregate benefit changes negligibly when the toll revenue is recycled to cut sales taxes instead of the income tax, but gross product still rises by 0.6%. Under the sales tax cut, consumers, importers and landlords benefit more evenly than under the income tax cut, but with the property tax cut nearly all of the cut is capitalized into property values.