CPB Hybrideseminar – Welvaartseffecten van congestie in Luxemburg ende omliggende grensregio’s

This paper quantifies the welfare and fiscal effects of highway congestion relief in Luxembourg, the EU’s largest cross-border labor market, where over 220,000 workers commute daily from France, Belgium, and Germany. We embed recursive logit route assignment in a quantitative spatial general equilibrium model, so that travel times respond endogenously to the counterfactual allocation of workers and firms. Doubling highway capacities reveals that cross-border commuter towns gain most, while Luxembourg City residents face welfare losses from rising housing prices and labor market competition. The average welfare gain is €2,156 per resident per year once the reallocation of economic activity occurs. Fiscal gains are substantial: since labor income earned in Luxembourg is taxed at source, the annual fiscal gain ranges from €0.9 billion to €1.7 billion (3% to 6% of Luxembourg’s annual budget), depending on the scenario.