Distributional Equity of Replacing Fuel Taxes with Vehicle Miles Traveled Fees: Evidence from Five San Francisco Bay Area Cities

In a world where people are increasingly shifting from internal combustion engine (ICE) vehicles to electric vehicles, revenue from state fuel taxes has continued to decline. This has prompted policymakers to consider alternative mechanisms to fund transportation infrastructure, including the introduction of a Vehicle Miles Travelled (VMT) fee. However, these changes may have distributional consequences. This study examines the geographical equity impacts of a VMT fee on residents of five cities in the San Francisco Bay Area and compares the financial burdens of a VMT fee and the existing fuel tax for households living in urban and rural settings. Household-level travel, income, and residential location data were obtained from the 2017 National Household Travel Survey. Four scenarios were evaluated: the current fuel tax, a static VMT fee, a dynamic VMT fee with modified elasticities, and a dynamic VMT fee using raw elasticities. Equity was assessed using the Gini Index. Results show that rural households face consistently higher burdens across all scenarios. The static VMT fee produces small changes relative to the fuel tax, while the dynamic scenarios increase financial burdens; especially for lower-income households due to behavioral adjustments. Overall, a VMT fee can serve as an alternative to the fuel tax, but behavioral responses and distributional differences remain important policy considerations.