The presence of distortive taxation and agglomeration benefits in the labour market meanthat there are benefits and losses not captured by standard cost-benefit analyses of transportpolicy measures. Recent theoretical analyses have raised concerns that the labour marketeffects of congestion charges may constitute considerable losses in the form of reducedaggregate labour income, over and above what is captured by the consumer surplus in thestandard analysis of congestion charges – possibly to the extent that congestion charges mayreduce aggregate social welfare, contrary to conventional wisdom in transport economics.The sign and size of these effects are an empirical question, however. We investigate thisissue by estimating the labour income effects of the Stockholm congestion charges, using anestimated relationship between workplace accessibility and labour income. Results showpositive effects on labour income, meaning that the “wider economic benefits” of this systemare in fact benefits, not losses. It turns out to be crucial that the model accounts for value-of-time heterogeneity in the income/accessibility relationship and in the calculation ofgeneralized travel costs.
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