Wednesday, November 15, 2006

Toll vs. Tax

Greg Mankiw recently has been pushing his Pigou Club, a call for higher gas taxes. Higher taxes naturally sit uneasy with me, but I really didn’t bother trying to figure out if anything was seriously wrong with Mankiw’s reasoning. Today Tech Central Station published an article on some shortcomings of a higher gas tax. A good point that author Ted Balaker brought up was

Our reliance on gas taxes means that drivers pay for roads when they're at the gas station, not when they're actually using them. The result is traffic congestion.

It doesn’t matter how much the tax is, after it’s paid for it’s a sunk cost. Hence a massive decrease in congestion most likely won’t result.

And sky-high gas taxes havn't reduced driving as much as one might expect… Over there [in Europe] per capita driving has been increasing more than twice as fast as in the states. Higher gas taxes haven't spared them from pollution or traffic congestion either.

But by charging for driving on the roads – making them toll roads – congestion will decrease. This is a far more effective means to reach the Pigou Club’s objectives.

If our system were toll-based instead, motorists would pay for roads only when they actually used them. They would think more carefully before piling on the road at rush hour. Tolling, especially the kind of variable tolling used on the 91 Express Lanes, does more than give motorists speedy and predictable trips, it's also easier on the environment than stop-and-go traffic.


SmoothB said...

"After it's paid it's a sunk cost"? But ... surely drivers don't just forget that refilling costs money, and more money after a tax? (And if they do, does this mean that the Ramsey rule suggests we should fund the entire government through gas taxes? If all gas taxes are sunk costs for drivers and don't change behavior, then there's zero deadweight loss and taxes are perfectly efficient.)

The article notes that idling cars waste gas and that cars are more likely to idle when traffic is congested ... and yet somehow comes to the conclusion that even though the decision to drive during congested times means more gas is consumed, more expensive gas has precisely zero effect on a driver's decision to use congested roads. But more tolls do. Huh?

And shall I even point out that toll roads do not take into account gas mileage, wheras a gas tax obviously does, and that the point of the pigou tax isn't just to internalize the costs of congestion but also the military, air pollution, and global warming externalities?

Anonymous said...

I take it you don't drive much Warren.

"Our reliance on gas taxes means that drivers pay for roads when they're at the gas station, not when they're actually using them."
So where else do you use gas? Gas is for cars. Cars drive on roads. So unless you're going to put toll booths on every road, side street, alley using tolls as a mean to pay for roads you use is useless. How much would you charge for someone driving half a mile for groceries? Or a mile to the furniture store?

Tolls actually increase congestion. Listen to the traffic reports. Apart from accidents, most of the bottlenecks are around around toll booths. Then you have the congestion caused by people trying to avoid the tolls. Electronic payment helps alot, but not everyone has them or trusts them since they are part of the government.