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Theory and Practice of Excise TaxationSmoking, Drinking, Gambling, Polluting, and Driving$
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Sijbren Cnossen

Print publication date: 2005

Print ISBN-13: 9780199278596

Published to Oxford Scholarship Online: October 2005

DOI: 10.1093/0199278598.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 16 January 2021

Road User and Congestion Charges

Road User and Congestion Charges

(p.193) Chapter 7 Road User and Congestion Charges
Theory and Practice of Excise Taxation

David Michael Newbery

Oxford University Press

Designing an efficient set of road user taxes and charges involves charging for scarce road space, setting corrective taxes for environmental externalities, and possibly employing additional taxes to improve the overall efficiency and equity of the tax system. As illustrated with data from the UK, congestion costs comprise the largest part of the efficient road user charge, with road damage costs and externalities a relatively small part. The best approach to internalising congestion costs is a cordon toll, although its efficient design turns out to be very complex. Road fuel taxes should probably be set at a level that accounts for the average long-run marginal cost of inter-urban roads for typical cars, with the vehicle excise duty set to adjust total payments by type of vehicle. Furthermore, the external cost of emissions of greenhouse gases, nitrogen oxides, and particulates can be reduced through tailpipe emission standards as well as met by differentially higher excises on, say, leaded than on unleaded petrol. An ad valorem tax on the component of car insurance that covers accident costs would internalise accident externalities. The study calculates the pure road charge and green tax elements in the UK at 0.60 euros/litre for petrol and 0.67 euros for diesel. If this applied generally across the EU, the Netherlands and Germany would be charging petrol at about the right rate and only the UK would be overcharging it. All countries except the UK are probably undercharging diesel. Overall, a strong argument can be made for revenue-neutral adjustments in total revenue from road use to improve efficiency by shifting over to better-targeted congestion taxes, such as cordon tolls and road pricing.

Keywords:   accident costs, congestions costs, cordon toll, diesel fuel excise, European Union, motor vehicle emissions, motor fuel tax, motor vehicle tax, road damage cost, road pricing

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