The Calculation of Congestion Taxes on Roads

Abstract

When deciding whether to make a journey, a road user is in general concerned only with the costs he will bear and the value to him of that journey. The marginal user will be the user to whom the marginal private cost is equal to the benefit to himself of the trip. The user ignores the costs he imposes on other road users by his presence in the flow of traffic. These costs may be called the congestion costs. The marginal social cost of a journey, defined as the sum of the marginal private cost and the congestion cost, is clearly well above the marginal private cost in many urban areas. Different road users derive different advantages from the use of road space. The present pricing system on congested roads does not give any weight to these valuations in deciding to what use the roads will be put. At present in Great Britain, assuming petrol consumption of 20-30 miles per gallon and a petrol tax of 2s. 9d. per gallon, there is an undifferentiated tax of 1 Id. to 1 6d. per mile. It is shown here that, following the aim of equating marginal social costs and marginal private costs by charging a congestion tax, there is a case for a substantial increase in the present level of taxation in congested areas. This demonstration takes the form of an appraisal of such attempts as have been made to measure congestion taxes, and the presentation of additional calculations of the same kind. The relative level of congestion taxes between different classes of vehicles is also considered. There are several reasons why road users might be made to pay the congestion costs they impose on other road users. Congestion taxes on roads would be appropriate if the pricing system elsewhere takes into account costs imposed on others, i.e., if prices elsewhere are equal to or greater than marginal social costs. Second, congestion taxes would be appropriate where there is excess capacity in the supply of a competing service. Railways could carry more passengers at very low cost during off-peak periods; their prices for extra passengers at these times are above marginal social cost. Congestion taxation on the roads would cause a switch to off-peak periods on the roads and perhaps also railways. Public road transport would benefit by reduced congestion, through decreased journey time, higher average speeds and, therefore, increased utilization of buses, etc. The third reason for congestion pricing concerns the distribution of taxation between the congested and non-congested areas. The latter account for over 90 per cent. 1 I am heavily indebted for the methods used to Professor A. A. Walters, University of Birmingham, and for valuable comments and assistance to Dr. M. E, Beesley, London School of Economics.