GRIPS 政策研究センター Policy Research Center


Aug 1, 2008 Report No:08-07

Revenue-recycling within Transport Networks

Field Economics
Language English

This paper analyzes the second-best pricing and investment policy for transport
networks with a revenue-recycling mechanism in which the toll revenue is used as
transport investments or subsidies, as in London’s congestion charging scheme. The
results of this paper demonstrate that the way toll revenue is used significantly modifies
the usual results, where a lump-sum transfer is assumed. First, revenue-recycling as
investment has an effect that works to increase the second-best toll when the benefits
from it are larger than the costs. Revenue-recycling as a subsidy does not have such an
effect. Second, ‘partial’ cost–benefit analysis that focuses only on the targeted transport
mode would usually lead to a false conclusion as to whether the toll revenues should be
used as transport investments, subsidies, or general tax revenues. The ‘full’ cost–
benefit analysis, which includes changes in consumer surplus and producer surplus in
all transport modes, is necessary.

Keywords Congestion tax; Revenue-recycling; Road pricing; Transport Network; Cost-benefit
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