Mileage tax, property tax, sales tax, or fee: the best way to pay for commercial infrastructure that isn't free.

The analysis in this paper uses a circular model to compare four alternatives for funding infrastructure necessitated by commercial development: a mileage tax, a sales tax, and development impact fees, to a traditional property tax. The results suggest that infrastructure funding mechanisms may influence household travel distance due to policy induced firm entry. This result complements the existing literature which finds policies affect travel costs through changes in city size while the fixed size model presented here suggests travel costs are still important. Because firms capture transport costs, in the form of higher prices, in the model, a mileage tax increases the number of firms exceeding the socially optimal number. Through a system of impact-fee financing, firms internalize infrastructure costs which reduces the number of firms and approaches the socially optimal number. Sales taxes provide an intermediate case between fees and property taxes. The model of homogeneous households and monopolistic competition between firms provides results most applicable to policy for suburban jurisdictions. [ABSTRACT FROM AUTHOR]