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Revenue recycling within transport networks

  • Kidokoro, Yukihiro

In this paper, we analyse second-best pricing and investment policy for transport networks with a revenue recycling mechanism in which the toll revenue is used for transport investments or subsidies, as in London's congestion-charging scheme. The results of this paper demonstrate that the way toll revenue is used modifies the usual results significantly, which are typically based on assuming a lump-sum transfer. First, recycling revenue as investment increases the second-best toll when the benefits from the investment exceed the costs and when demand is inelastic with respect to the toll. Recycling revenue as a subsidy has no such effect. Second, "partial" cost-benefit analysis that focuses only on the targeted transport mode would usually lead to erroneous conclusions about whether toll revenues should be used for transport investment, subsidies, or general tax revenues. Thus, "full" cost-benefit analysis, which accounts for changes in consumer and producer surpluses in all transport modes, is necessary.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 68 (2010)
Issue (Month): 1 (July)
Pages: 46-55

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Handle: RePEc:eee:juecon:v:68:y:2010:i:1:p:46-55
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Richard Arnott & An Yan, 2000. "The Two-Mode Problem: Second-Best Pricing and Capacity," Boston College Working Papers in Economics 474, Boston College Department of Economics.
  2. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545 Elsevier.
  3. Verhoef, Erik & Nijkamp, Peter & Rietveld, Piet, 1996. "Second-Best Congestion Pricing: The Case of an Untolled Alternative," Journal of Urban Economics, Elsevier, vol. 40(3), pages 279-302, November.
  4. de Palma, André & Lindsey, Robin & Proost, Stef, 2007. "Chapter 12 Synthesis of case study results and future prospects," Research in Transportation Economics, Elsevier, vol. 19(1), pages 269-297, January.
  5. William C. Wheaton, 1978. "Price-Induced Distortions in Urban Highway Investment," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 622-632, Autumn.
  6. Parry, Ian & Bento, Antonio, 1999. "Revenue Recycling and the Welfare Effects of Road Pricing," Discussion Papers dp-99-45, Resources For the Future.
  7. de Palma, André & Lindsey, Robin & Proost, Stef, 2007. "Chapter 1 Investment and the use of tax and toll revenues in the transport sector: The research agenda," Research in Transportation Economics, Elsevier, vol. 19(1), pages 1-26, January.
  8. Proost, Stef & De Borger, Bruno & Koskenoja, Pia, 2007. "Chapter 3 Public finance aspects of transport charging and investments," Research in Transportation Economics, Elsevier, vol. 19(1), pages 59-80, January.
  9. Parry, Ian W. H. & Bento, Antonio, 2002. "Estimating the Welfare Effect of Congestion Taxes: The Critical Importance of Other Distortions within the Transport System," Journal of Urban Economics, Elsevier, vol. 51(2), pages 339-365, March.
  10. Small, Kenneth A., 2001. "Using the Revenues from Congestion Pricing," University of California Transportation Center, Working Papers qt7170x9b0, University of California Transportation Center.
  11. repec:ebl:ecbull:v:18:y:2005:i:1:p:1-6 is not listed on IDEAS
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