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Distributional Impacts of Congestion Pricing. Douglass B. Lee, Jr. International Symposium on Road Pricing Key Biscayne, FL November 2003. Purpose. Efficiency versus Equity Equity horizontal vertical Objective Measurement (vs. eye of beholder) direct impact (as a tax) - PowerPoint PPT Presentation
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04/21/23 US DOT/Volpe Center 1
Distributional Impacts of Congestion Pricing
Douglass B. Lee, Jr.
International Symposium on Road Pricing
Key Biscayne, FL
November 2003
04/21/23 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)
04/21/23 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
04/21/23 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)
04/21/23 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
04/21/23 US DOT/Volpe Center 6
Example Raw Income Data
income class
04/21/23 US DOT/Volpe Center 7
1999 Household Income
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
$2,5
00
$7,4
99
$12,
499
$17,
499
$22,
499
$27,
499
$32,
499
$37,
499
$42,
499
$47,
499
$52,
499
$57,
499
$62,
499
$67,
499
$72,
499
$77,
499
$82,
499
$87,
499
$92,
499
$97,
499
$100
,000
Household Income
freq
uen
cy
source: 2000 Current Population Survey, Census Bureau
04/21/23 US DOT/Volpe Center 8
NPTS 1995
6,22313,712
18,91925,326
29,72936,663
44,20852,918
66,898
117,033
$0
$20
$40
$60
$80
$100
$120
$140
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
HH income deciles
av
era
ge
HH
in
co
me
(0
00
)
source: NPTS (1995)
04/21/23 US DOT/Volpe Center 9
Shares of Income by Decile
1.5%3.3%
4.6%6.2%
7.2%8.9%
10.7%
12.9%
16.3%
28.4%
6.2 13.7 18.9 25.3 29.7 36.7 44.2 52.9 66.9 117.0
HH income deciles
sh
are
of
tota
l in
co
me
source: NPTS (1995)
04/21/23 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
04/21/23 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)
04/21/23 US DOT/Volpe Center 12
Distribution of Peak Trips
4.0%
6.0%6.9%
8.5% 9.0%
10.3%
11.8%12.7%
14.4%
16.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
HH income deciles
sh
are
of
pe
ak
tri
ps
04/21/23 US DOT/Volpe Center 13
Peak Trips versus Income
share of household
income
share of peak highway trips
0%
5%
10%
15%
20%
25%
30%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
HH income deciles
sh
are
of
inc
om
e,
pe
ak
tri
ps
(%
)
source: NPTS (1995)
04/21/23 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
04/21/23 US DOT/Volpe Center 15
Peak Trips as Percent of Income
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
HH income deciles
pe
ak
tri
ps
as
% o
f in
co
me
source: NPTS (1995)
04/21/23 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
04/21/23 US DOT/Volpe Center 17
Shares of SR-91 Users by Income Group
19%
23%
37%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
% income < $40,000 % income < $60,000 % income < $100,000 % income >%100,000
income group
per
cen
t
04/21/23 US DOT/Volpe Center 18
Histogram of SR-91 Users by Income
21%
37%
23%
19%
0
0.002
0.004
0.006
0.008
0.01
0.012
0.014
0 20 40 60 80 100 120 140
household income ($000)
freq
uen
cy
04/21/23 US DOT/Volpe Center 19
Histogram with Fitted Density Function
72.3
average income
0
0.002
0.004
0.006
0.008
0.01
0.012
0.014
0.016
0 20 40 60 80 100 120 140 160 180 200
household income ($000)
04/21/23 US DOT/Volpe Center 20
Distribution Fitted to 1999 Household Income
calculated sample mean
0
0.002
0.004
0.006
0.008
0.01
0.012
0.014
0.016
0.018
0 50 100 150 200 250
annual household income ($000)
rela
tive
fre
qu
ency
04/21/23 US DOT/Volpe Center 21
$72.3
average income
$83.154.842
0
0.002
0.004
0.006
0.008
0.01
0.012
0.014
0.016
0.018
0 20 40 60 80 100 120 140 160 180 200
income ($000 per year)
freq
uen
cy
04/21/23 US DOT/Volpe Center 22
Relative Burden Function
constant distn. income
distn. toll
HH total classin HH of %income total class of income %
HH total classin HH of % tolls total classby paid tolls%
ncome$payments/i
04/21/23 US DOT/Volpe Center 23
Direct Burden for SR-91
SR91X
SR91
Poll Tax
0
1
2
3
4
5
6
0 20 40 60 80 100 120 140 160 180 200
04/21/23 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
04/21/23 US DOT/Volpe Center 25
Distribution of Gas/Oil Expense
4.0%
5.4%6.2%
8.0%9.1%
10.5%
11.9%
13.4%14.6%
16.7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%CU expenditure deciles
sh
are
of
ga
s/o
il e
xp
en
se
s
source: Consumer Expenditures in 1999 (BLS)
04/21/23 US DOT/Volpe Center 26
Gas and Oil Expenditures by Decile
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%CU expenditure decile
gas
olin
e/o
il as
% o
f ex
pen
dit
ure
s
source: Consumer Expenditures in 1999 (BLS)
04/21/23 US DOT/Volpe Center 27
Gasoline Expenditures as % of Income
0
0.5
1
1.5
2
2.5
3
3.5
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000
annual household income before taxes
per
cen
t o
f in
com
e sp
ent
on
gas
olin
e an
d o
il
04/21/23 US DOT/Volpe Center 28
Comparison of Two Taxes
peak highway trips
gas and oil expense
0%
1%
2%
3%
4%
5%
6%
7%
0% 20% 40% 60% 80% 100%
HH income deciles
trip
s,g
as
as
sh
are
of
inc
om
e
04/21/23 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
04/21/23 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
04/21/23 US DOT/Volpe Center 31
Supply-Demand Elasticities
S
S+tax
excise tax
Demand
q0q1
p0
ps
pcshare paidby consumers
share paidby suppliers
04/21/23 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
04/21/23 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)