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The Economic Rationale for Road Pricing is Compelling - Essay Example

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“The economic rationale for road pricing is compelling”, Institute for Fiscal Studies, May 2012. Critically discuss this statement. Contents Introduction 3 Road Transport and economics 3 The report 4 Conclusion 6 References 8 Introduction The pricing of roads is often cited as the mechanism in order to manage demand in the theoretical literature starting from Pigou in the year 1920…
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Download file to see previous pages The European Union is studying the marginal cost of pricing in the arena of transportation for about a decade now. The Union funded many ongoing projects in this field. The RAC Foundation handed over the responsibility of determining the mechanisms of motoring taxes to the independent institute of fiscal studies. They were asked to investigate whether the taxes are equitable and justifiable. The report from the institution mentioned the issue of cabotage and stated that the hauliers belonging to the other countries have the potential to deliver goods into the market of UK by paying lower taxes on diesel or ignoring the duty rates of the country (Gillen, 2007, p. 1-2). Road Transport and economics A key role is played by transportation in the economic scenario of today. A term, transport economics is used now to identify the role of transport in economy. The supply is determined by the capacity carriers offer to the travelers while the demand is determined by the number of trips the travelers takes within a particular time frame. In order to witness a booming economy it is necessary to maintain a steady system of transport that allows fluent access of goods and services across the country. If the goods get delay because of lacks in transport facilities the profits will fall which will take its toll on the level of efficiency. An efficient transport system will create employment opportunities (Croner, 2012). A vast majority of labor is necessary to carry out the responsibilities of transporting goods to the various places quickly. When the economy is not on its course people are less willing to travel and the economy suffers while in the booming situation frequent traveling not only creates more job opportunities but also contributes in strengthening the transport system. The road transportation is more popular where people tend to find the less costly method of transportation. The road transportation facilities are characterized by monopolistic competition which revolves around the conditions of supply and demand. The products or the services offered in the monopolistic competitive market are same but cannot be substituted. The differentiation in the offered products provides choices for the consumers and the consumers can take the decision on which product they want to avail. This factor acts as the catalysts to drive in more competition into the market as well as new innovations which are less costly and more effective (Seely, 2012, p. 2) The report The report of the IFS recommended a move to a more diverged system of road pricing. The revenues raised as a resultant can be used to reduce the taxes on motor transport. Such a measure is thought to generate sufficient economic gains from reduction in congestion. The measure is also thought to reduce the levied taxes on the majority of driven miles, and leave a certain portion of the motorists in a better off situation as well as provide a stable footing for the taxes on motoring without taking any additional measures to raise the net additional benefits from the drivers. The use of roads generates costs that are borne not only by the motorists but also by the wider society. Therefore externalities are accrued to the system of road taxes or the system of road pricing. These externalities suggest that in the absence of effective pricing or taxation policies there is inefficient high level of road use. The taxes have the ...Download file to see next pages Read More
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