Is a Flat Toll Actually Unfair to the Poor?
Welcome back to the blog! I've been buried in a research paper on New York's congestion pricing program, and along the way I pulled a thread that didn't quite belong in the final draft but was too good to just throw away. Here it is instead, as its own post: the question of whether a flat toll is actually as regressive as it sounds.
The knee-jerk objection to any flat toll is straightforward: a $9 charge is a bigger bite out of a small paycheck than a large one, so tolls must hit poorer drivers harder. That's true as far as it goes. But a closer look at who actually benefits from a toll tells a more complicated story, and four separate strands of evidence push back on the simple version.
Most Low-Income Travelers Aren't Driving in the First Place
London's 2003 congestion charge was criticized as regressive when it launched, on the assumption that individual drivers, who were now paying more, skewed toward lower incomes. That criticism overlooked something simple: most low-income Londoners in the charging zone got around by bus, not by car. The 30% drop in excess delay that came with the charge benefited exactly those riders, who make up the majority of low-income travelers in the zone.
Revenue Reinvestment Can Flip the Math
Parry and Small's (2009) research found that when toll revenue gets reinvested in public transit, the overall effect can turn progressive. The toll itself is regressive at the point of payment, but expanded bus and rail service, especially with reduced fares for lower-income riders, tends to benefit those same households more than the toll cost them.
Peak-Hour Data Skews Wealthier Than You'd Expect
Drivers who need to be in a business district during peak hours skew toward higher incomes to begin with. The toll zones with the steepest charges tend to sit inside those business districts, so the people paying the most are disproportionately the people with the least trouble affording it. Lower-income drivers, who are less likely to commute into that specific zone for work, end up carrying a smaller share of the burden than the flat sticker price suggests.
Toll Revenue Can Substitute for Worse Taxes
Goulder's (1995) framework shows that if toll revenue lets a government lower an inefficient tax elsewhere, like income tax, the net distributional effect can favor lower-income households even though the toll itself is regressive on its face.
None of this makes a flat toll perfectly fair. But it does mean the reflexive "tolls hurt poor people" objection is doing less work than it sounds like it's doing, once you follow the money and the ridership data instead of just the sticker price.
References
Goulder, L. H. (1995). Environmental taxation and the double dividend: A reader's guide. International Tax and Public Finance, 2(2), 157–183.
Leape, J. (2006). The London congestion charge. Journal of Economic Perspectives, 20(4), 157–176.
Parry, I. W. H., & Small, K. A. (2009). Should urban transit subsidies be reduced? American Economic Review, 99(3), 700–724.
