AN EFFICIENCY ASSESSMENT OF THE HIGHWAY USER CHARGE SYSTEM

The first section of this paper discusses the implications of an efficiency-based highway user charge structure. The marginal costs of road use are identified and the functional relationships between use and such costs are discussed. This section also discusses the concept of efficient revenue taxes. The second section of the paper discusses each of the tax instruments now being used and considers whether they are suitable to either the pricing or revenue role. Few existing taxes have meaningful incentive role. In its final section, the paper indicates the analysis necessary to assess the appropriateness of current system. The paper concludes that a rational user charge scheme would be multipart, including both pricing and revenue taxes. Improvements to the present system are possible, but will require greater knowledge of the costs associated with road use and the administrative and efficiency costs of alternative taxes. The Treasury is advised to consider developing highway cost information relating to the economic issues involved in highway financing. The Treasury is advised to consider developing highway cost information relating to the economic issues involved in highway financing. The treasury should also assess the current system of federal, state and local highway financing and evaluate the relative advantages of prices and revenue, taxes at each level. Coordination of Federal, state and local tax administration should be improved.