The visible hand in economics

Subsidies for driving

Posted on: September 30, 2007

On this blog we’ve talked a lot about how driving is undertaxed and overused. An aspect of this that we haven’t addressed yet is the funding mechanism for roads in New Zealand. At present, government spending on roading exceeds the revenue gained from road taxes. Essentially this means that road use is subsidised by all taxpayers. As a consequence, road use is inefficiently cheap for all road users even when congestion and carbon emissions are disregarded. Megan McArdle’s right when she says

We clearly need to institute comprehensive road tolls combined with a congestion pricing scheme. Plus, of course, a carbon tax to compensate for the negative externalities drivers are imposing on those of us who use primarily mass transit.

The road tolls she speaks of could be in the form of higher fuel prices, higher licensing costs for vehicles or toll booths on roads. If the government is serious about reducing congestion and decreasing our carbon emissions then ending the subsidy on road use might be a good place to start.

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3 Responses to "Subsidies for driving"

I have to admit James, I agree with you 100% here 😉

I agree in principle. Correct me if I’m wrong, but wasn’t (until recently) a big deal made out of the fact that fuel taxes weren’t all being spent on roads? I don’t know how much of current road spending is “catch-up”, and whether current road-taxes wouldn’t be sufficient to pay for the steady-state depreciation on roading infrastructure (I realise there are other externalities).

The same principle also suggests there shouldn’t be subsidies for most public transport, does it not?

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