Distributional effects of congestion charges and fuel taxes

A common argument against car use taxes, such as congestion charges and fuel taxes, is that they hurt poor groups disproportionately. This chapter discusses this argument, explains methodological issues in distributional analyses and summarizes typical empirical findings. How distributional effects of a car use tax should be viewed depends on whether the purpose of the tax is fiscal or price-correcting (i.e. intended to make the cost of driving better reflect social costs). Overall, average payments of car use taxes tend to be approximately proportional to income, with a small tendency to regressivity in rich countries and progressivity in poor countries. However, there may substantial variation within an income group, which may be problematic if a tax primarily has a fiscal purpose. Distributional analyses of public revenue sources and public spending should in general be kept separate, since the definitions of what constitutes distributional neutrality often differ between taxes and expenditures.