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Urban congestion - why 'free' roads are costly


  • Paul Hubbard

    (Treasury, Government of Australia)


The inhabitants of Australia's larger cities suffer from frequent traffic jams. Many see this as an inescapable fact of city life, but its root cause is overuse of a common resource — the urban road network. Most roads are nominally 'free' to drive on, resulting in demand for many roads that exceeds capacity at relatively predictable times. This means that motorists do in fact pay — in wasted time — to drive on 'free' roads at peak periods. This disrupts the flow of people and goods in the economy, harming productivity and growth — as well as frustrating all road users. Putting a price on access to roads at busy times might encourage individuals to change their travel plans, and reduce their vehicle's contribution to congestion. New South Wales has taken a first step in adopting time-of-day pricing on the Harbour Bridge and Harbour Tunnel. In theory — unlike paying in time, which is wasted — the money paid by motorists to drive on busy roads at peak times could potentially be redistributed to ensure no one is worse off. Some potential compensation mechanisms currently available to governments include cutting taxes on vehicle ownership or use (such as registration or fuel excise), adjusting income taxes, and investing in alternative transport options for those 'tolled off' the roads.

Suggested Citation

  • Paul Hubbard, 2009. "Urban congestion - why 'free' roads are costly," Economic Roundup, The Treasury, Australian Government, issue 2, pages 1-19, July.
  • Handle: RePEc:tsy:journl:journl_tsy_er_2009_2_1

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    More about this item


    congestion; user-pay; toll roads; transportation economics;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning


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