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Pricing externalities from passenger transportation in Mexico city
 
Author:Parry, Ian W.H.; Timilsina, Govinda R.; Collection Title:Policy Research working paper ; no. WPS 5071Paper is funded by the Knowledge for Change Program (KCP)
Country:Mexico; Date Stored:2009/10/09
Document Date:2009/10/01Document Type:Policy Research Working Paper
SubTopics:Energy Production and Transportation; Transport Economics Policy & Planning; Transport and Environment; Roads & Highways; Transport in Urban AreasLanguage:English
Major Sector:Energy and miningRel. Proj ID:1W-International & National Climate Mitigation -- -- P084595;
Region:Latin America & CaribbeanReport Number:WPS5071
Sub Sectors:General energy sectorTF No/Name:TF054654-KCP
Volume No:1 of 1  

Summary: The Mexico City Metropolitan Area has been suffering severely from transportation externalities such as accidents, air pollution, and traffic congestion. This study examines pricing instruments to reduce these externalities using an analytical and numerical model. The study shows that the optimal levels of a gasoline tax and a congestion toll on automobiles could generate social benefits, measured in terms of welfare gain, of US$132 and US$109 per capita, respectively, through the reduction of externalities. The largest component of the welfare gains comes from reduced congestion, followed by local air pollution reduction. The optimal toll and tax would, however, double the cost of driving and could be politically sensitive. Still, more than half of those welfare gains could be obtained through a more modest tax or toll, equivalent to $1 per gallon of gasoline. The welfare gains from reforming the pricing of public transportation are small relative to those from reforming the taxation of automobiles. Although the choice among travel modes depends on specific circumstances, in the absence of road travel pricing that accounts for externalities, there will be potential for higher investment in roads relative to mass transit. Given the rapidly increasing demand for transportation infrastructure in Mexico City, careful efforts should be made to include the full social costs of travel in evaluating alternative infrastructure investments.

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