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Revenue-recycling within Transport Networks

  • Yukihiro Kidokoro

    (National Graduate Institute for Policy Studies)

This paper analyzes the second-best pricing and investment policy for transport networks with a revenue-recycling mechanism in which the toll revenue is used as transport investments or subsidies, as in London’s congestion charging scheme. The results of this paper demonstrate that the way toll revenue is used significantly modifies the usual results, where a lump-sum transfer is assumed. First, revenue-recycling as investment has an effect that works to increase the second-best toll when the benefits from it are larger than the costs. Revenue-recycling as a subsidy does not have such an effect. Second, ‘partial’ cost?benefit analysis that focuses only on the targeted transport mode would usually lead to a false conclusion as to whether the toll revenues should be used as transport investments, subsidies, or general tax revenues. The ‘full’ cost? benefit analysis, which includes changes in consumer surplus and producer surplus in all transport modes, is necessary.

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Paper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 08-07.

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Length: 33 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:ngi:dpaper:08-07
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  1. Small, Kenneth A., 1992. "Using the Revenues from Congestion Pricing," University of California Transportation Center, Working Papers qt32p9m3mm, University of California Transportation Center.
  2. 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.
  3. 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.
  4. 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.
  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 W.H. & Bento, Antonio Miguel R., 1999. "Revenue recycling and the welfare effects of road pricing," Policy Research Working Paper Series 2253, The World Bank.
  7. 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.
  8. 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.
  9. 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.
  10. repec:ebl:ecbull:v:18:y:2005:i:1:p:1-6 is not listed on IDEAS
  11. 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.
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