Mileage-Based User Fee Winners and Losers - RAND Corporation

externalities in order to cause the consumer to internalize the full cost of consuming the good, and
reduce their demand to the socially optimal level (Baumol and Oates 1988).
Gasoline taxes are sometimes promoted as a Pigouvian tax to reduce fuel consumption and
the risk of global climate change (Mankiw 2008). In addition, economists have long examined ways
to price travel more efficiently to manage demand to reduce urban traffic congestion and reduce
infrastructure investment needs (Mohring and Harwitz 1962). MBUFs, as discussed in the previous
chapter, are promoted on efficiency grounds because they may help to reduce the demand for VMT
to more socially optimal levels.
Despite the welfare effects of certain taxes, welfare is not typically considered in
distributional analyses of taxes although in some cases there are important welfare implications of
the tax which should be considered (Parry, Walls, and Harrington 2007). This study is the first to
examine the full distributional implications of net changes in household welfare from adopting
MBUFs. In fact, very few studies of the distributional implications of transportation finance
consider the change in the distribution of the externalities of driving despite the large marginal
social costs of travel and fuel consumption (Parry, Walls, and Harrington 2007).
PRIOR FINDINGS REGARDING THE EQUITY OF FUEL TAXES AND ROAD
PRICING
Generally, estimates of the distribution of the gasoline tax burden, especially using crosssectional
data, find it to be highly regressive (West 2002). There are several qualifications regarding
the relative regressivity of motor fuel taxes. Calculating lifetime fuel expenditures over lifetime
income suggest that the fuel tax is “far less regressive” than studies of annual expenditure suggest
(Poterba 1991). However, a later study concludes that gasoline taxes are regressive for most people
because only a small proportion of individuals are only temporarily poor (Chernick and Reschivsky
1997). Nonetheless, the finding that fuel consumption, and therefore fuel tax burden, varies over an
individual’s lifetime is pertinent to this dissertation. One set of groups examined in the distributional
analysis are life cycle groups. Different types of households have quite different travel needs and
their tax burdens vary as a result, as do the distributional implications of adopting an MBUF.
Some studies find that low income households have a higher price elasticity than do high
income households. 13 Studies that do not allow the price elasticity to vary with income may also
overstate the regressivity of the gasoline tax (West and Williams III 2004). Low income households
are more responsive to changes in the price of gasoline than high income households. A reduction
in fuel consumption comes at the cost of travel and mobility and this has further equity implications.
Other research finds that equity implications of raising the fuel tax can vary with differences in car
ownership and travel behavior across income groups and that, when controlling for income, there
were also “significant differences in impacts across racial categories and regions of residence”
(Bento et al. 2009).
There is less experience with various forms of road pricing than with the motor fuel excise
tax and, therefore, there are also fewer empirical studies of the equity of pricing (Levinson 2010).
Such projects do raise significant equity concerns among the public and there are, consequently, a
great many studies which have found that the distributional implications of adopting a cordon toll,
tolling a road, or just several lanes of a road depend on the socio-economic characteristics of the
people who use the road (Ecola and Light 2009; Levinson 2010). These characteristics can vary
considerably from one place to the next and it is possible for any single road pricing project to be
13 This is discussed in Chapter 3.
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