THE INEFFICIENCY OF TOLL COLLECTION AS A MEANS OF TAXATION: EVIDENCE FROM THE GARDEN STATE PARKWAY

Abstract

In this paper, we calculate the cost of toll collection on New Jersey’s Garden State Parkway by extending an existing model to include pollution and fuel costs. The results show that tolls are a very inefficient method of taxation versus fuel and income taxes. We also show that the pollution costs of toll collection are significant. Therefore, when no mass transit alternative exists, and there is no compelling need for congestion pricing, the cost of taxation and pollution can be greatly reduced by replacing tolls with either an income or fuel tax. Also, when tolls are used, the toll road operators should be required to purchase pollution tax credits; otherwise, they are not accounting for a major cost of the toll collection process and are likely to make sub-optimal policy decisions.

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