Do Commuters Free-ride? Estimating the Impacts of Interjurisdictional Commuting on Local Public Goods Expenditures

In an era of political pressure to reduce taxes while increasing government services, local officials face difficult choices regarding what services to provide and how to finance them. One outcropping of this dilemma is that local citizens are expressing concerns that commuters use local government services but without paying for them. In response, some communities are considering taxing commuters. In this study we develop a basic model of congestion in a two-city model to examine commuters’ effects on the optimal provision of public goods. The theoretical result suggests that taxing commuters at the difference in marginal congestion costs between the two cities can attain market equilibrium. We then specify an empirical model to determine this tax’s size for Pennsylvania municipalities. The econometric results show differences in marginal congestion costs between workplace and resident communities, providing evidence that commuters may free-ride. The difference in marginal congestion costs, however, tends to be small, so we advise policymakers to be hesitant in adopting such a tax.