Financing Transportation Networks

Financing Transportation Networks

Transport Economics, Management and Policy series

David M. Levinson

Pollution, alternative fuels, congestion, intelligent transportation systems, and the shift from construction to maintenance all call for a reconsideration of the existing highway revenue mechanisms, especially the gas tax. David Levinson explores the fundamental theoretical basis of highway finance, in particular the use of tolls, and supports that theory with empirical evidence. The author examines highway finance from the perspective of individual jurisdictions and travellers, and considers their interactions rather than specifying a single optimal solution. Congestion pricing has long been a goal of transportation economists, who believe it will result in a more efficient use of resources. Levinson argues that if the governance were to become more decentralized, and collection costs continue to drop, tolls could return to prominence as the preferred means of financing roads for both local and intercity travel. An approach that creates the local winners necessary to implement road pricing is required before it can be expected to become widespread.

Chapter 4: Revenues

David M. Levinson

Subjects: economics and finance, public finance, transport, environment, transport, urban and regional studies, transport


INTRODUCTION States have the opportunity to impose toll financing on many of their bridges and highways and to determine the rate of toll, recognizing the legal and fiscal constraints imposed by accepting federal transportation funds. Yet not all states levy tolls, and those that do vary in their rate of toll. This chapter examines empirical evidence to explain the dependence of state highway finance on tolls. The term ‘beggar thy neighbor’ describes strategic trade behavior, essentially mercantilist in nature, designed to give one country a foreign trade advantage at the expense of others.’ Inevitably, such behavior leads to retaliation and only makes everyone worse off. Countries perceive what game theorists term a ‘prisoners’ dilemma,’ whereby ‘cooperating’ to reduce barriers only pays off in the long term and only if others do so as well. Highway tolls are in some ways analogous to tariffs. States (or the turnpike authorities they establish) can charge travelers for crossing a boundary. Often, no similar charge is levied on traffic remaining within the boundary. In this way, a toll may be viewed as a tariff on the transportation portion of a good or on labor. Overall, states and users may be better off if other financing mechanisms, with significantly lower transaction costs such as gas taxes, are chosen. However, the inability of states to cooperate and compensate each other for their residents’ travel on other states’ roads leads to a more direct and costly toll system. When most users are in-state residents, a legislature...

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