1. Winners and Losers: Distributional Impacts of Highway User Fees
Principal Investigators: B. Starr McMullen, Ph.D
Lei Zhang, Ph.D.
Research Assistants: Kyle Nakahara
Divya Valluri
Smita Biswas
Oregon State University

2. Case Study: Oregon Proposed change in highway user charges: From a Gasoline Tax to Vehicle mile fee
Purpose of Tax: To Collect Road User Fees (We will not consider congestion fees here)
Intent: Revenue Neutral Fee
VMT tax set at $.012/mile to replace $.24/gallon gasoline tax ($.012 = $.24/20 mpg)

3. Background
Oregon legislature has realized the futility of trying to fund highways with the current 24 cent/gallon tax
No political support for raising the tax
Given trend towards more fuel efficient vehicles, fuel tax no serves as a road user fee as light vehicle road damage is more related to miles rather than fuel consumed
Suggestion by legislatively appointed Road User Fee Task Force (RUFTF):
Replace gasoline tax with a Vehicle Mile Tax (VMT)

4. Who Gains and Loses From This Change ?
Distribution of Costs:
Between Income Groups
Between regions (urban/rural)
Identification important for decisions regarding
revenue distribution

5. Regressive, Progressive, and Proportional or Neutral Tax/Fee Structures
A regressive fee takes a greater percentage of income from lower income groups and higher income groups pay a smaller percentage of income
A progressive fee means that higher income
groups pay a progressively higher percent
of their income in fees
In a proportional or neutral fee structure all income groups pay the same percent of their income in fees

6. Average Oregon Household Expenditures With Oregon Gasoline Tax of $
Average Oregon Household Expenditures With Oregon Gasoline Tax of $.24 (2001, with average Oregon gasoline price of $1.46/gallon)
Income group
Number of Households
Average HH expenditure with gas tax $.24/gallon
Average HH
expenditure as % of income
Average tax revenue with gas tax of $.24/gallon
Tax as % of income under $.24/gallon gas tax 1 39
658
6.63%
108
1.09% 2 75
918
4.09%
151
.67% 3 65
1174
3.17%
193
.52% 4 62
1595
3.06%
262
.50% 5 40
1859
2.75%
3066
.45% 6 67
1993
1.81%
328
.30%
Average HH
income
9935
22433
37038
52096
67500
109962

7. Average Household taxes under Gasoline tax of $
Average Household taxes under Gasoline tax of $.29/gallon (Using 2001 Average Oregon price of $1.46/gallon)
Income group
Number of households
Average tax revenue with gas tax of $.29/gallon
Tax as % of income under $.29/gallon gas tax
Average change in Tax revenue for $.05 increase in tax/gallon ($)
(as %of income) 1 39
131
1.32%
23 (+.23%) 2 75
182
.81%
31 (+.14%) 3 65
233
.63%
40 (+.11%) 4 62
317
.61%
55 (+.11%) 5 40
369
.55%
64 (+.10%) 6 67
396
.36%
68 (+.06%)

8. What has the rise in gasoline prices done to the incidence of overall gasoline expenditures?
Average 2001 gasoline price in Oregon was $1.46/gallon with a $.24/mile tax --- and this was regressive
What has happened as gasoline prices have risen ---let’s use a gasoline price of $2.64/gallon including $.24/mile gas tax

9. Average Oregon Household Gasoline Expenditures as a Percent of Income With Oregon Gasoline Tax of $.24
Income group
Number of Households
With an Average gas price of $1.46/gallon
(2001)
With an Average gas price of $2.64
Change in incidence 1 39
6.63%
11.99%
+5.36% 2 75
4.09%
7.40%
+3.31% 3 65
3.17%
5.73%
+2.56% 4 62
3.06%
5.54%
+2.48% 5 40
2.75%
4.98%
+2.23% 6 67
1.81%
3.28%
+1.47%
Average HH
income
9935
22433
37038
52096
67500
109962

10. The change from a Gas Tax to a VMT will result in an increase in the cost per mile of driving to some; a reduction in the price of driving to others
Price Increase: Vehicles with MPG >20
Price Decrease: Vehicles with MPG< 20
No Change: Vehicles with MPG =20

11. Objections raise to change to VMT
1. It will be regressive: Households in lower income groups will be the “losers”, higher income households will gain or lose less
2. Rural areas will lose from the change in policy
3. This policy will not encourage use of high fuel efficiency vehicles

12. Is the Proposed Change in User Fee Structure a Regressive Change?
Static Analysis: Assumes that behavior is not affected by a change in fee structure; each driver drives exactly the same amount with each vehicle as before the fee was implemented
Dynamic Analysis: Tries to account for the fact that consumers will change driving behavior in response to the change in the price of driving that the tax change causes

13. Average HH Expenditures including $.24/gallon tax
Static Analysis: Impact of a Change from a $24/gallon gasoline tax to a $.012/mile VMT (2001)
Income Group
Number of Households
Average HH Expenditures including $.24/gallon tax
Average HH Expenditures including $.012/mile VMT
Change in Expenditure (as % of income) 1 39
658.90
666.72
7.81 (+.07%) 2 75
917.84
923.03
5.19 (+.02%) 3 65
-4.40(-.01%)
0.23(<0.01%) 5 40
(-.04%) 6 67
-6.00(<.01%) 62 4

14. Static Analysis: Impact of a Change from a $24/gallon gasoline tax to a $.012/mile VMT (2001) cont.

15. Alternative Policy Scenarios:
Alternative Policy 1: Gas Tax of $.24/gallon for vehicles with <20 mpg ; VMT of $.012/mile for vehicles with mpg=or>20 mpg (2001 gas prices)
Alternative Policy 2: Step fee: a. MPG< median MPG pays 2cents/mile b. between median MPG to 20 pays 1.5 cents/mile c. MPG>20 pays 1 cent/mile

16. Average Expenditures Under Gas Tax
  Static Model Alternate Policy 1: Gas Tax of $.24/gallon for vehicles with <20 mpg ; VMT of $.012/mile for vehicles with mpg=or>20 mpg (2001 gas prices)
Income Group
Average Expenditures Under Gas Tax
($)
Average Mixed Policy Expenditures ($)
Change in Expenditures (as % of income) 1
658.90
675.36
16.46 (+1.66%) 2
917.84
935.01
17.17 (+.08%) 3
17.90 (+.05%) 4
28.47 (+.05%) 5
22.40 (+.03%) 6
31.08 (+.03%)

17. Alternate Policy 2: Step fee: a. MPG< median MPG pays 2cents/mile b
Alternate Policy 2: Step fee: a. MPG< median MPG pays 2cents/mile b. between median MPG to 20 pays 1.5 cents/mile c. MPG>20 pays 1 cent/mile
Income group
Number of Households
Average HH tax cents/gal
Average tax revenue step fee
Average revenue change 1 39
108.31
123.60
15.29 (+1.54%) 2 75
150.88
176.66
25.78 (+1.15%) 3 65
192.99
223.88
30.89
(+.08%) 4 62
262.21
305.32
43.11 5 40
305.56
380.27
74.71
(+1.11%) 6 67
327.55
404.11
76.56
(+.07%)

18. DYNAMIC ANALYSIS: Once behavior changes by the consumer are considered
(movement along the demand curve), the relevant
measure of the change in welfare for consumers is the
change in consumer surplus (CS)---not simply the
change in tax revenue (TR)
For a tax increase, consumers may end up paying less in
taxes, but they may do so by driving less--- and that
involves another loss

19. Dynamic Model 1: Ordinary Least Square (OLS) Regression
To get dynamic response, we need a model that take into account the behavioral responses ---which may differ by income group and by location
We first use an OLS model ---
this gives an estimation of changes in vehicle use (i.e. changes in household vehicle miles traveled)

20. OLS Results: Dependent variable- Annual Household miles (n=339)
Variable Name
Coefficient
Stand.Error
T-Statistic
Constant
-17.72
6.25
-2.84
Fuel Cost
-8.76
2.39
-3.67
Income
2.21
0.61
3.60
Fuel Cost * Income
0.72
0.24
3.05
Fuel Cost * Substitution
0.44
0.40
1.09
Urban
-0.16
0.10
-1.67
#Vehicles
0.54
0.13
4.18
Vehicle Substitution
1.39
1.05
1.32
Male Head
0.17
0.09
1.94
#Worker
0.21
0.05
3.95
#Children
0.04
0.91
Italicized variables are logarithimic

21. Demand elasticity by Income group

22. Average Changes in Consumer Surplus, Tax revenue and Welfare by Income ($/Household)

23. Average Changes in Consumer Surplus, Tax revenue and Welfare by Income ($/Household) cont.
Income Group
Average Change in Consumer Surplus
Average Change in Tax Revenue
Average Change in Welfare 1
-7.93
5.31
-2.61 2
-6.88
6.52
-0.36 3
9.97
-4.51
5.46 4
-2.58
8.61
6.03 5
30.44
-13.81
16.63 6
13.69
-2.78
10.91

24. Impact of a Change from a $24/gallon gasoline tax to a $
Impact of a Change from a $24/gallon gasoline tax to a $.012/mile VMT ; Alternative Policy 1 and Alternative Policy 2 24

25. Dynamic Model 2: Discrete-Continuous Choice Model

26. Conclusions
The Dynamic Model Comparison of the change in tax revenues makes the policy impact appear less regressive than the static model
ALL of the VMT-fee policy scenarios have a considerably smaller impact on incidence than the increase in gasoline prices in recent years caused by external forces
Different VMT-fee structures have different impacts on incidence or equity, but the difference is not significant

27. Next Steps
VMT-fees may also be designed to achieve sustainability objectives, such as reducing fuel consumption, reducing greenhouse gas emissions, and encouraging the ownership of greener vehicles
A conflict between sustainability and equity given the current vehicle ownership reality
Congestion pricing based on VMT-fee technology
Long-term revenue forecast with VMT fees

28. Questions and Comments
This research was funded partially ODOT and OTREC. The author would like to thank Alan Kirk, Jim Whitty, Betsy Imholt, Becky Knudson, Brian Gregor, Jack Svadlenak, Satvinder Sandhu, Anthony Rufolo for their assistance. The authors are solely responsible for the opinions expressed here.
Contact Information
B. Starr McMullen Lei Zhang

29. Additional Slides

30. Conventional Wisdom
The static model will overestimate the impact of a tax increase, underestimate the impact of a tax decrease Static model assumes that the change in tax revenues paid is the only impact that a tax change will cause---- a direct transfer from consumer to the Government

31. Change in Consumer Surplus with Demand Response
Price (p)
Pvmt
Pgas
Quantity (q)
Qvmt
Qgas

32. Total Change in Revenue for an Increase in Price: B-A
Price (p)
Total change in revenue to agency from
Price increase = B-A;
Price decrease= A-B
Pvmt B
Pgas A
Quantity (q)
Qvmt
Qgas

33. Elasticity by Income group- OLS based on Average Income
Elasticity w/ SUB
Elasticity w/o SUB 1
$9,055.90
1.7577
2.2125 2
$21,983.11
1.128
1.5828 3
$36,899.07
0.7603
1.2151 4
$51,952.61
0.5174
0.9722 5
$67,394.80
0.3326
0.7874 6
$106,043.36
0.0108
0.4656