Assessment of the Introduction of Road Pricing using a Computable General Equilibrium Model

The introduction of road pricing has important budgetary and income distributional consequences. In countries like Denmark, due to high marginal rates of taxation, raising government revenue and redistributing income is associated with substantial distortionary and administrative costs. This paper argues that an evaluation of the introduction of road pricing needs to take into account not only the effects on congestion and on the environment, but also the effects on the government's budget and the income distributional consequences and therefore should be undertaken within a general equilibrium framework. A stylized Computable General Equilibrium (CGE) model which represents the interaction of the consumption of transport and of traffic congestion with leisure is used to illustrate this point. Model simulations show that the introduction of road pricing may be associated with a double dividend and make it desirable to reduce transport infrastructure, and furthermore, although decreasing road congestion, increase the environmental damage