CHARGING FOR ROADS

The article discusses two theoretical methods of measuring road use costs and designing a system of road user charges. The first states that road damage externalities are zero and road damage costs are equal to the traffic-related fraction of maintenance expenditure. The second states that, with constant returns and optimal road capacity, congestion charges should recover the remaining total overhead costs. Vehicles should be charged these costs, and additional pure taxes on passenger vehicles should be guided by principles of indirect taxation. Although road user charges alone may fail to cover the total highway budget, the additional pure taxation is likely to more than cover the shortfall. The article argues that an appropriate system of taxes and charges can be devised to meet these requirements without adversely effecting the rest of the economy.