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WINNERS, LOSERS, OR A ZERO-SUM GAME? 49 ROAD PRICING AND EQUITY IN NORWAY urban areas in Norway now have urban toll rings in place that could be modified to address congestion. Modifica- Farideh Ramjerdi tions to support congestion pricing might include increases in toll levels, differentiated tolls by time of day, and Equity concerns are high on the list of reasons for oppo- changes in the location of toll stations. While true conges- sition to road pricing. While some of the popular argu- tion pricing will improve efficiency, such improvements ments against road pricing can be dismissed out of hand, may well be accompanied by negative distributive im- equity concerns merit close attention--not just to facili- pacts. Revenue recycling can help, but its positive impacts tate implementation of a measure that can improve the on public opinion will be minimized if there is a lack of efficiency of the transport system but also because transparency in the process of allocating the revenues. equity objectives are important in their own right. A Under these conditions, public opinion and political sup- reconciliation of the potential conflict between equity port for the continuation of urban toll and congestion and efficiency can be brought about through the use of pricing schemes will erode even further. at least two policy instruments. First, the recycling of We therefore argue that policies should be evaluated revenues back into the transportation system should be on both efficiency and equity grounds. Congestion pric- an integral part of the road pricing scheme. Second, an ing, by its nature, has negative distributive impacts that understanding of the valuation of externalities by vari- must be addressed. The design of the integrated policy ous socioeconomic groups and regions is essential for instruments should take account of the negative distrib- evaluating alternative pricing programs. utive impacts by providing the necessary compensation In forging transport policy, governments ideally have to the losers. Since this alone might not create a political three objectives: raising revenue to provide public goods consensus for congestion pricing, further incentives to and services, achieving a desirable income distribution, overcome inequities might be both politically necessary and controlling externalities. In a perfect world a govern- and good public policy. ment has perfect information, can use nondistortionary taxes for revenue-raising and distributive purposes, and has perfect instruments to deal with the transport exter- IMPACTS OF PRICING ON INCOME CLASSES nalities. In the real world, the evaluation of transport instruments should take into account not only the trans- Douglass Lee port sector but also the rest of the economy and the general tax system. Vertical equity--the impact of a policy on the distribution Norway's urban toll systems have been introduced as of income among income classes--is one of several major financing schemes intended to deal with funding short- components of policy evaluation and a subject that receives falls that are unfortunately accompanying an increase in a great deal of popular and political attention. Popular road traffic. In 2000 toll revenues contributed about 35% comments about vertical equity, however, are often based of total funding for transport infrastructure. Since 1986, on a weak understanding of theory and little or no empiri- with the introduction of toll ring schemes in Bergen, Oslo, cal evidence. This is unfortunate, because useful theory and and Trondheim, and more recently in Stavanger and Kris- some data are available and allow conclusions to be tiansand, there has been a dramatic shift toward toll- reached that can improve public decisions. financed facilities in urban areas. With low elasticities Though vertical equity is a matter of concern with coupled with a focus on revenue gains, the designs of most policy initiatives, it comes up especially often in these systems have exhibited a minor concern for equity discussions of congestion pricing. While existing data do and produced limited impacts on congestion levels. not permit precise conclusions, a close investigation of Since the mid-1990s amendments to the national findings to date and the application of some judgment road laws have made it possible to allocate some of the produce several generalizable results. revenues from a toll scheme to public transport invest- First, the distributional impact of peak congestion ments. A new amendment, approved in June 2002, sanc- pricing appears to be mildly regressive, measured tions the use of a toll scheme for demand management against household income, but not regressive enough to and has opened the door to congestion pricing. Under stand as an obstacle to peak pricing. Those traveling on this amendment the proceeds from a scheme must be urban highways at the peak period in the peak direction used for local road and public transport purposes. are substantially more affluent than the population as a Where are we now in Norway with respect to road whole, and those who choose to pay the toll are more pricing? Since the introduction of the toll ring schemes, affluent still. support for road pricing as part of an integrated package Second, alternative (existing) financing mechanisms of policy instruments for urban areas has increased. Legal such as fuel excise taxes, sales taxes, and local property barriers to pricing have diminished. And almost all larger taxes are also mildly regressive under typical conditions, so
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50 I N T E R N AT I O N A L P E R S P E C T I V E S O N R O A D P R I C I N G there is no great urgency to shift away from them on verti- the freight rail system may be inefficient if those sectors cal equity grounds. (There are, however, good efficiency receive more funds than they can use efficiently--that is, and horizontal equity reasons for doing so.) apply in ways that generate positive net benefits. More- Third, using toll revenues to reduce general taxes or over, since public revenues tend to be fungible, ear- to provide income transfers based on need is probably marking revenues may simply replace other revenue the safest way to recycle the revenues generated through sources, in whole or in part. With reasonable care, pricing schemes. Earmarking revenues for specific pur- though, recycling the toll revenues should result in a net poses can be desirable in closing the loop between pay- favorable vertical redistribution. ers and beneficiaries but can be dangerous economically In short, congestion pricing is probably a progressive and misleading politically. Spending toll revenues to policy from the standpoint of redistributional equity, increase highway capacity, subsidize transit, or support and no worse than mildly regressive.