01351437

Component

http://onlinepubs.trb.org/onlinepubs/sr/sr303West.pdf

The objective of this paper is to explain the equity implications of adopting a public finance policy, such as imposing a tax. It draws on examples from the broad literature on tax incidence and from the literature on transportation finance. This paper explores both direct and indirect incidence; that is, it investigates who pays directly and how these burdens may be shifted in both the short and long term through other markets. It focuses on incidence of the costs of public finance schemes, leaving to other experts discussion of the many potential benefits of such schemes. Incorporating such benefits into equity analyses would reduce burdens for all income groups and might have important distributional effects if the benefits are unevenly distributed across those groups. Section II examines the critical importance of relative price responsiveness on incidence measures, comparing incidence measures calculated under the most stringently restrictive of simplifying assumptions, and exploring the effect of adding layers of complexity on equity implications. Once one has calculated the absolute costs of a public finance scheme for members of different groups, one must choose the measure of income or total consumption with which to make a comparison of the costs of the scheme relative to people’s overall well-being. Section III examines the important effect of this choice on incidence estimates. Rebating tax revenue or using it to reduce other taxes can have dramatic effects on incidence estimates. So can dynamic considerations, how evasion is punished, the salience of a tax, and the degree to which market participants factor price changes into their decisions. Section IV discusses these complications, and Section V sums up the main points analysts and policymakers should keep in mind when considering incidence.

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01351433

English

19p

2011

Transportation Research Board Special Report

9780309167604

Web

Figures (4) ; References

Equity; Financing; Highways; Public transit; Taxes; Transportation policy

Incidence

Economics; Finance; Highways; Policy; Public Transportation; Society; I10: Economics and Administration

TRIS, TRB

Sep 9 2011 8:37AM

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