The case for congestion charging

Eric Crampton writes:

Emissions pricing and congestion pricing have a lot in common. The economics of both are straightforward. And the politics of both are a mess.

Like carbon charging, congestion charging simply makes sense. About 90 per cent of economists surveyed endorsed carbon and congestion charging – a decade ago. And the case for both has not got weaker with time.

At 90% endorsement, you can say the science is settled!

Most taxes cause distortions. Congestion and carbon charges instead eliminate distortions. They would be base-broadening measures that could allow some worse taxes to be cut while providing room for some additional spending.

If you had decent congestion charging then you could lower petrol tax, and also help solve the issue of funding from non petrol vehicles.

In the real world, fear of high carbon or congestion charges hitting poorer households means politics gets in the way. The equity concerns are real, although in the case of congestion charges, they are rather more debatable.

But there is a better solution than interfering with the ETS, or skewing congestion prices.

In both cases, collected revenues could fund a dividend that would be returned to households.

Excellent idea.

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