Commuting is costly both in time and money for the individual as well as for society since transport in general generates negative externalities, e.g. congestion, accidents and air pollution. At the same time commuting is complementary to labour and is therefore a necessity. In many European countries commuting is subsidised. The subsidies can have different forms and sizes and are given for various reasons. Labour markets are subject to distortionary taxes in all countries. One argument for the subsidies is that only net income should be taxed and therefore there should be a deduction for the commuting expenses. The optimal tax argument is that commuting is complementary to labour and therefore should be treated as such. This paper studies another argument used in favour of commuting subsidies; since commuting longer from home takes more time and costs more money, workers will only accept a job far from their residence if they are subsidised. Consequently, the commuting subsidy is necessary to reduce the expected length of an unemployment period and to ensure a sufficiently mobile and flexible labour supply. At the same time as politicians worry about the labour supply they worry about the increasing traffic and the resulting externalities. The focus of the study is on the interaction between the transport sector and the rest of the economy and the aim is to analyse the trade-offs between the costs and benefits of commuting transport. The benefit of more commuting is a flexible labour supply and more efficient labour markets with lower unemployment. The costs are mainly the negative externalities of transport. First a theoretical framework for qualitative analyses of the trade-off between the costs and benefits of commuting is formulated. It combines imperfect labour markets with a transport externality (congestion) in a spatial framework. Second, a simulation model (CGE) is constructed to give quantitative evaluations of this trade-off and third, four different policies are evaluated to indicate the quantitative effects of these policies. The four policies are: increase in subsidies to long distance commuting, reduction of a wage tax (i.e. labour income tax), reduction of a transport tax and a subsidy to firms for vacancies. The analyses are carried out in a two-region model that describes the households' demand for commuting. The demand emerges from the need to go to work to increase income and thereby consumption. The labour markets are described by a search imperfection, following Pissarides (1990 and 2000). Congestion is explicitly included, with a feedback effect, as the only externality. This formulation implies interactions between the transport sector and the rest of the economy through the labour market. Further, the model provides a formal setting for describing geographical distributional effects since commuting is spatially appointed. However, this will not be the main issue of this paper. (Author/publisher)
Abstract