The economics of road user charges

Abstract

Economic analysis is applied to individual road usage and to governmental choices concerning road improvement. The problem is to find user charges and tax and investment policies that give rise to the most efficient utilization of all resources. Some form of marginal cost pricing is recommended. Economic analysis provides no basis for requiring a particular road, class of roads, or highway system as a whole to cover costs by user charges. Using a model of the road and the development that it stimulates, the best tax is found to be the tax on the increment of rent generated by the road. Statistical evidence confirms the conjecture that for most interurban and rural paved highways, the marginal cost of a vehicle journey is virtually zero. For congested areas the marginal cost is high. The economic user charges may be at least partly introduced by a rearrangement of existing and tested instruments of user charges such as the fuel tax, tire levies, purchase taxes on vehicles, and many of the forms of license duties. But it might be wise to introduce a restricted license for the use of roads in congested areas of large conurbations. Urban congestion levies have implications for the shortage of capital, balance of payments, and inflation.

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