1. 2/2/2016US DOT/Volpe Center1 Distributional Impacts of Congestion Pricing Douglass B. Lee, Jr. International Symposium on Road Pricing Key Biscayne, FL November 2003

2. 2/2/2016US DOT/Volpe Center2 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)

3. 2/2/2016US DOT/Volpe Center3 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

4. 2/2/2016US DOT/Volpe Center4 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)

5. 2/2/2016US DOT/Volpe Center5 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

6. 2/2/2016US DOT/Volpe Center6 Example Raw Income Data

7. 2/2/2016US DOT/Volpe Center7 1999 Household Income source: 2000 Current Population Survey, Census Bureau

8. 2/2/2016US DOT/Volpe Center8 NPTS 1995

9. 2/2/2016US DOT/Volpe Center9 Shares of Income by Decile

10. 2/2/2016US DOT/Volpe Center10 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

11. 2/2/2016US DOT/Volpe Center11 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)

12. 2/2/2016US DOT/Volpe Center12 Distribution of Peak Trips

13. 2/2/2016US DOT/Volpe Center13 Peak Trips versus Income

14. 2/2/2016US DOT/Volpe Center14 Distributional Analysis Restate impact of policy as a percent of income for each income class Horizontal line is neutral; falling (tax) is regressive

15. 2/2/2016US DOT/Volpe Center15 Peak Trips as Percent of Income

16. 2/2/2016US DOT/Volpe Center16 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

17. 2/2/2016US DOT/Volpe Center17 Shares of SR-91 Users by Income Group

18. 2/2/2016US DOT/Volpe Center18 Histogram of SR-91 Users by Income

19. 2/2/2016US DOT/Volpe Center19 Histogram with Fitted Density Function

20. 2/2/2016US DOT/Volpe Center20 Distribution Fitted to 1999 Household Income

21. 2/2/2016US DOT/Volpe Center21

22. 2/2/2016US DOT/Volpe Center22 Relative Burden Function

23. 2/2/2016US DOT/Volpe Center23 Direct Burden for SR-91

24. 2/2/2016US DOT/Volpe Center24 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

25. 2/2/2016US DOT/Volpe Center25 Distribution of Gas/Oil Expense

26. 2/2/2016US DOT/Volpe Center26 Gas and Oil Expenditures by Decile

27. 2/2/2016US DOT/Volpe Center27 Gasoline Expenditures as % of Income

28. 2/2/2016US DOT/Volpe Center28 Comparison of Two Taxes

29. 2/2/2016US DOT/Volpe Center29 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

30. 2/2/2016US DOT/Volpe Center30 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

31. 2/2/2016US DOT/Volpe Center31 Supply-Demand Elasticities

32. 2/2/2016US DOT/Volpe Center32 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

33. 2/2/2016US DOT/Volpe Center33 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)