This Thursday I was an "expert witness" before the Israel National Planning Board concerning an objection launched by a local Planning Board to a 1,200 residential complex that includes a number of high-rise buildings. Among the arguments that were presented against the project was the high cost of maintaining high-rise buildings and the possibility that over time the project will turn into a slum. An additional argument of the officials of the local Board was that the quality of life of the residents in the complex will be adversely affected by the noise of the highway and train station next to the complex.
These arguments should be contrasted to the arguments of Ed Glaeser in a recent article in the New York Times
[URL: http://www.nysun.com/article/47626]. Ed Glaeser points out the contribution of Manhattan residents to environmental quality. They use less land per capita and their usage of private cars is much smaller than that of other cities. All this is due to the high density in Manhattan.
In this spirit I suggest that we encourage the construction of high-rise, dense residential complexes next to major transportation infrastructure and that we make them accessible to lower income residents by appropriate negative Pigou taxes, in relation to their contribution to the reduction of negative externalities. This is not to say that higher income residents should not benefit from such taxes.
It is common for economists to advocate taxes on negative externalities in the context of market activities. The so-called Pigovian taxes (after Arthur Pigou) should be levied on producers who pollute the environment to encourage them to reduce pollution, and to provide revenue which may be used to counteract the negative effects of the pollution. Greg Mankiw keeps track of economists who advocate Pigovian taxes. [See http://gregmankiw.blogspot.com/2006/09/rogoff-joins-pigou-club.html
Also, see the manifesto of the Pigou Club: http://gregmankiw.blogspot.com/2006/10/pigou-club-manifesto.html].