The city-wide effects of tolling downtown drivers: Evidence from London’s congestion charge

Abstract

This paper studies effects of London’s Congestion Charge on regional traffic, commuting, and economic activity’s spatial distribution. London began tolling drivers into its central business district in 2003 and I find that the policy reduced traffic on untolled roads leading downtown. I build this effect into a quantitative model with heterogeneous skills, endogenous mode choice, and traffic externalities to examine effects on commuters. Simulations suggest that London’s Congestion Charge incentivizes driving to untolled workplaces and gives the region’s commuters positive net benefits. I also find that benefits are progressive because the policy reduces traffic where low-skill commuters live and work.