Tuesday, January 06, 2009

A Strange Pigovian Idea in Oregon

A reader asks about this plan:
Democratic Gov. Theodore R. Kulongoski's upcoming budget calls for a highway tax based on mileage, not gasoline purchases.A state task force will look at equipping every new vehicle in Oregon with a Global Positioning System to record every mile driven and where. Motorists would pay at the gas pump based on how much they drove, no matter how fuel-frugal their vehicle.
This makes sense if you are trying to tax road use and congestion but don't particularly care whether people are driving SmartCars or Hummers. On the other hand, as long as politicians and the public are concerned about fuel efficiency and carbon emissions, as they seem to be, it makes more sense to stick to the more standard gasoline tax.

One possible advantage for the GPS system: You can potentially calibrate the level of the tax to the degree of congestion on the particular road at the particular time of day, so the tax better reflects the changing externality associated with driving. There is no evidence in the article that this varying charge is envisioned, however.

Update: Fred Thompson, a professor at Willamette University in Oregon, offers this input:

I am a faithful reader of your blog and have used your intro text (were I still teaching intro, I'd use it again, although the price is off-putting).

I am writing about Gov. Kulongoski's weight-use mile tax proposal,which deserves, I think, a closer look. The tax is not primarily aimed at gasoline consumption, but is a charge for highway use. The base rate proposed is a quadratic function of axle-weight, times the number of axles and miles travelled, which together with vehicle speed, determines highway wean and tear. However, lighter axle-weight is correlated with fuel consumption (as is speed) and highly fuel efficient vehicles are already eligible for state subsidy.

Of course, one critical advantage of the proposal is that: "You can potentially calibrate the level of the tax to the degree of congestion on the particular road at the particular time of day, so the tax better reflects the changing externality associated with driving." This is, indeed, contemplated in the Gov's proposal,although it is not included in the 2009-11 budget. In the longer run, congestion-pricing will also be useful in maintaining the existing transportation network and necessary for planning its expansion. Moreover, there is not much sense in building the GPS system if you aren't contemplating congestion pricing.

The proposal also contemplates the incorporation of vehicle speed into the base rate in the future. However, like congestion pricing, OR's Department of Transportation hasn't done enough experimentation with this option to understand how it to make it work.

Thanks, Fred.