The Grattan Institute report found a system of road pricing would also be a good way to raise funds for better public transport, such as better bus services.
The report, Productive Cities: opportunity in a changing economy, said the system could take the form of road user charges, congestion charges, or time-of-day tolling.
It found that charging motorists to use roads would result in "a more efficient use of road space" and ultimately help to lift labour productivity.
"In order to address traffic congestion, it is not enough to rely solely on building new roads without also paying attention to managing the demand for road space," the report states.
Road pricing would "also go some way towards raising the revenue needed to increase the capacity of public transport".
However the report conceded that governments would have to spend "political capital" to implement such a system.
It also urged governments to build more homes in established suburbs, saying rising house prices meant many blue-collar workers risked being locked out of areas that offered the best access to jobs.
"This will be good for the economy and good for the fair go," the report found.
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