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Can we decentralize transport taxes and infrastructure supply?

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  • Fung, Chau Man
  • Proost, Stef

Abstract

This paper studies analytically a tax reform where federal gasoline and car taxes are replaced by tolls decided by local authorities. This is particularly relevant in countries with high gasoline taxes like the EU or countries that introduce gasoline taxes like China. One of the major barriers in the reform is the allocation of revenues: when the goal of the federal government is to keep the gasoline tax revenue constant, a vertical tax conflict reduces the efficiency gains of the new instruments. Another barrier is the presence of spillovers: it elicits tax-exporting behavior by regional governments and the high taxes overly discourage traffic. We find the efficiency loss of the first barrier to be small and spillover inefficiency to be larger. When infrastructure capacity is flexible, the spillover inefficiency tends to be larger if pricing and capacity decisions are decentralized and smaller if only pricing or capacity decisions are decentralized.

Suggested Citation

  • Fung, Chau Man & Proost, Stef, 2017. "Can we decentralize transport taxes and infrastructure supply?," Economics of Transportation, Elsevier, vol. 9(C), pages 1-19.
    • Handle: RePEc:eee:ecotra:v:9:y:2017:i:c:p:1-19
    DOI: 10.1016/j.ecotra.2016.10.003
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    References listed on IDEAS

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    Cited by:

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    5. Börjesson, Maria & Asplund, Disa & Hamilton, Carl, 2023. "Optimal kilometre tax for electric vehicles," Transport Policy, Elsevier, vol. 134(C), pages 52-64.

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    More about this item

    Keywords

    H21; H71; R48; Tax reform; Gasoline taxes; Road tolls; Flat tolls; Fine tolls; Decentralization; Transport policy;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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