Modelling Transport in an interregional General Equilibrium Model with Externalities

In this chapter the regional economic impacts of road pricing on cars are analysed taking into account externality effects from transportation on wages and productivity. The direct impacts from changes in transport costs on level of wages and productivity (the direct externality effects) have been estimated. The direct and derived economic impacts of road pricing have been evaluated using the sub-regional economic model LINE. The direct effects on level of wages and productivity have been included in the model together with all the direct effects on commodity prices from road pricing. The total impacts of road pricing have been subdivided into three components: 1) The wage effects of reducing income net of commuting by increasing transport costs with introduction of road pricing, 2) the labour contraction effect arising from increasing wages through increases in commuting costs and 3) the negative productivity effects of introducing road pricing. In total the impacts of road pricing are substantial. Regions with high level of average commuting costs (suburban areas in Greater Copenhagen) suffer most, whereas the centre of Copenhagen suffers least because of short commuting distances. In rural areas impacts are on or just below the average because of low levels of road pricing.