CHARGING FOR ROADS

The article discusses two theoretical methods of measuring roaduse costs and designing a system of road user charges. The firststates that road damage externalities are zero and road damagecosts are equal to the traffic-related fraction of maintenanceexpenditure. The second states that, with constant returns andoptimal road capacity, congestion charges should recover theremaining total overhead costs. Vehicles should be charged thesecosts, and additional pure taxes on passenger vehicles shouldbe guided by principles of indirect taxation. Although roaduser charges alone may fail to cover the total highway budget,the additional pure taxation is likely to more than cover theshortfall. The article argues that an appropriate system oftaxes and charges can be devised to meet these requirementswithout adversely effecting the rest of the economy.