Distributional Impacts of Congestion Pricing

1. Distributional Impacts of Congestion Pricing Douglass B. Lee, Jr. International Symposium on Road Pricing Key Biscayne, FL November 2003 US DOT/Volpe Center

2. Purpose • Efficiency versus Equity • Equity • horizontal • vertical • Objective Measurement (vs. eye of beholder) • direct impact (as a tax) • relative to current financing methods (recycling) • after behavioral response (incidence) US DOT/Volpe Center

3. Two Major Dimensions of Equity • Horizontal • treat equals equally • Vertical • impact on the distribution of income: reduce disparity (progressive), increase disparity (regressive), or neutral • impact on income class proportional to income is neutral • not everything is regressive US DOT/Volpe Center

4. Conclusions • Vertical equity impacts of peak pricing are not bad, not enough to be an obstacle to efficiency • true before revenue recycling; revenues can easily correct equity impacts (and also kill efficiency gains) • Alternative instruments are also not that bad, e.g., gasoline excise tax, property tax • Earmarking may be politically useful but is economically dubious if revenues are fungible (e.g., gambling revenues for education) US DOT/Volpe Center

5. 1. Direct Impact • Definition of income • household, family, consumer unit, per capita • money, earned income, before tax, after transfers, permanent income, wealth • Method of Measurement • tax returns • expenditures • self-reported (c. 15% no response for NPTS) • categories, quantiles, density function US DOT/Volpe Center

6. Example Raw Income Data US DOT/Volpe Center

7. 1999 Household Income source: 2000 Current Population Survey, Census Bureau US DOT/Volpe Center

8. NPTS 1995 US DOT/Volpe Center

9. Shares of Income by Decile US DOT/Volpe Center

10. Peak Congested Trips • Selected NPTS trips • mode = auto, SUV, van, or pickup • start time = 6:30 to 9:30 AM or 3:30 to 7:00 PM • travel day = weekday • place = urban, suburban, or second city (not town or rural or undetermined) • n= 52,000 out of 409,000 trips • Ignores • peak direction • trip length • degree of congestion (demand vs. capacity) • occupancy US DOT/Volpe Center

11. Tax on Peak Trips • Each trip charged a fixed amount • same amount (“toll”) for each trip • “Tax” is borne entirely by any person currently driving in the peak • whether they stay or change is not considered (yet) US DOT/Volpe Center

12. Distribution of Peak Trips US DOT/Volpe Center

13. Peak Trips versus Income US DOT/Volpe Center

14. Distributional Analysis • Restate impact of policy as a percent of income for each income class • Horizontal line is neutral; falling (tax) is regressive US DOT/Volpe Center

15. Peak Trips as Percent of Income US DOT/Volpe Center

16. Observations • Tax impact generally rises with income, but not as rapidly • A tax per trip on existing peak travelers is mildly regressive, according to these data • Data are noisy, and noise tends to flatten the distribution (i.e., toward random) • Permanent income reduces regressiveness US DOT/Volpe Center

17. Shares of SR-91 Users by Income Group US DOT/Volpe Center

18. Histogram of SR-91 Users by Income US DOT/Volpe Center

19. Histogram with Fitted Density Function US DOT/Volpe Center

20. Distribution Fitted to 1999 Household Income US DOT/Volpe Center

21. US DOT/Volpe Center

22. Relative Burden Function US DOT/Volpe Center

23. Direct Burden for SR-91 US DOT/Volpe Center

24. 2. Recycling of Revenues • Fuel excise tax, general sales tax, local property tax reduction • Consumption of gasoline and oil as percent of income/expenditures • excise tax is proportional to gallons, not to dollar amount paid (i.e., not a sales tax) • Compare revenue-neutral policies US DOT/Volpe Center

25. Distribution of Gas/Oil Expense US DOT/Volpe Center

26. Gas and Oil Expenditures by Decile US DOT/Volpe Center

27. Gasoline Expenditures as % of Income US DOT/Volpe Center

28. Comparison of Two Taxes US DOT/Volpe Center

29. 3. Shifting and Incidence • Individuals who change behavior reduce the burden of the tax/toll on themselves; those who stay and pay bear the full brunt • More careful analysis has been done for national tax instruments, but not for congestion tolls or “value pricing” • Behavioral responses can be estimated, but data are very few US DOT/Volpe Center

30. Shifting the Burden • If employers pay commuting, burden is shifted to owners and customers • If costs are tax deductible, burden is diffused among taxpayers • Behavior changes to avoid the tax/toll cause some redistribution of the burden • Not zero-sum; delay is “deadweight” loss • e.g., tax on luxury (>100 feet) yachts US DOT/Volpe Center

31. Supply-Demand Elasticities US DOT/Volpe Center

32. Behavior Changes • No change • high time-value travelers may prefer time savings with toll • Shift route • increases time for traveler, impacts travelers on parallel routes • Shift to carpool or transit • may leave traveler better off (cost plus time), impacts other modes • Shift time • traveler worse off than before but less than paying the toll • Shift locations • workplace or residence or other destination US DOT/Volpe Center

33. Correcting Vertical Equity Impacts • Use of revenues from congestion pricing (Small rule) • reduce general taxes or other user fees • improve attractiveness of alternative transportation modes • redistribute revenues according to income (low income receives largest compensation) US DOT/Volpe Center