A framework for determining road pricing revenue use and its welfare effects

In the last five decades, much of the focus on travel cost has been on what form pricing should take, whether it should be a direct road toll, in the form a Vehicle Miles Traveled (VMT) tax, encapsulated in the gas tax, or by some other mechanism. An area that has received much less attention, but is nonetheless important when considering any pricing change, is the impact of such mechanisms on traveler welfare and travel time savings. While an increase in the cost of travel may achieve traffic flow efficiencies, it may also unduly burden low-income travelers or unjustly benefit higher-income drivers. An important aspect of the road pricing debate is not just whether pricing will produce an efficient market, but also if such pricing is implemented, how the generated revenue will be managed. We propose a model to analyze transport equity by measuring change in traveler welfare and travel time savings as a result of a mix of road pricing, revenue recycling (tax cuts) and transit subsidies. In this paper we introduce a multimodal travel demand model to incorporate road pricing mechanisms with various subsidy options. A base case and five scenarios are developed to address various hypothetical pricing scenarios. We find the structure of the road pricing mechanism on average has a small impact on annual per capita traveler welfare. Replacing the state gas tax with a VMT tax can have a positive impact on traveler welfare, particularly for lower-income groups and rural residents. A VMT tax increase would be the least detrimental to welfare, especially for low-income groups.