Evaluation of the Introduction of Road Pricing Using a Computable General Equilibrium Model

Abstract

The introduction of road pricing has important budgetary and income distribution consequences. In countries like Denmark, due to high marginal rates of taxation, raising government revenue and redistributing income is associated with substantial distortionary costs and administrative costs. This chapter argues that an evaluation of the introduction of road pricing needs to take into account not only the effects on congestion and on the environment, but also the effects on the government’s budget and the income distribution consequences. A stylised Computable General Equilibrium (CGE) model which represents the interaction of the consumption of transport and of traffic congestion with leisure is used to illustrate this point. In addition, model simulations show that the introduction of road pricing may increase environmental damage, may make it desirable to reduce transport infrastructure and potentially may be associated with a significant double dividend.