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CEP discussion paper

Evaluating Urban Transport Improvements: Cost Benefit Analysis in the Presence of Agglomeration and Income Taxation


There is a substantial empirical literature quantifying the positive relationship between city size and productivity. The paper draws out the implications of this productivity relationship for evaluations of urban transport improvements. A theoretical model is developed and used to derive a wider cost-benefit measure that includes productivity effects. The order of magnitude of such effects is illustrated by calculations in a simple computable equilibrium model. It is argued tht productivity effects, particularly when combined with distortionary taxation, are quantitatively important, substantially increasing the gains that are created by urban transport improvements.


Anthony J. Venables

September 2004     Paper Number CEPDP0651

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This CEP discussion paper is published under the centre's Trade programme.