VMT Research Paper

Can
A
Mileage
Based
Tax
System
Replace
an

Outdated
Fuel
Tax?

Kaleb
Rogers

Public
Finance

04/03/2013

2

Introduction

Public
Finance
is
defined
as
“the
field
of
economics
that
studies
government

activities
and
the
alternative
means
of
financing
government
expenditures”1.
The

Rhode
Island
State
Government,
as
well
as
those
of
other
states,
is
currently
facing

such
an
issue
in
the
form
of
the
growing
gap
between
transportation
revenues
and

expenditures.
The
fuel
tax,
which
is
a
common
generator
of
revenue
across
all
areas

of
the
US,
has
gradually
weakened
over
the
past
several
years
as
a
means
to
finance

the
transportation
expenditures
demanded
by
households
and
businesses.

Representative
Linda
Finn,
a
member
of
the
Rhode
Island
House
of
Representatives,

has
recently
inquired
on
the
implementation
of
a
Vehicle
Miles
Traveled
(VMT)
tax,

which
would
levy
tax
shares
on
gasoline
consumption
based
on
the
amount
of

mileage
one
drives
rather
than
the
gallons
purchased
to
fuel
one’s
car.
The
proposal

of
such
a
tax
reform
is
in
the
early
stages
of
development
nationwide.
The
proposal

is
especially
new
to
the
legislative
body
of
Rhode
Island.
Therefore,
in
order
to

examine
the
pursuit
of
the
VMT
tax,
this
paper
will
evaluate
the
studies
already

performed
by
other
states
and
institutions.
More
specifically,
The
Nevada

Department
of
Transportation
and
The
Oregon
Department
of
Transportation
have

previously
evaluated
the
transformation
from
a
fuel
tax
to
a
VMT
tax
system.

Representative
Finn
cited
both
of
these
documents
as
a
basis
for
the
potential
future

legislation
sought
after
by
the
Rhode
Island
State
Government.
Furthermore,
this

paper
will
describe
the
necessary
cost-‐benefit
analysis
that
the
public
sector
must

perform
before
making
an
informed
decision
on
the
matter.

To
truly
understand
the
urgency
of
the
reformation
of
the
fuel
tax
system,

one
must
first
understand
the
intentions
of
policy
makers
and
econometricians
as

well
as
the
motivation
behind
their
proposals.
The
main
issue
with
the
current
fuel

tax
is
its
independency
from
inflation.
The
research
released
by
the
Nevada

Department
of
Transportation
titled,
Nevada
Vehicle
Miles
Traveled
(VMT)
Fee
Study

describes
the
lack
of
progression
in
the
taxable
portion
of
gasoline
in
the
state:

“In
1993,
the
pump
price
of
a
gallon
of
fuel
was
about
$1.22
and
the
fuel
tax

per
gallon
was
about
53
cents…in
2009
the
price
of
a
gallon
of
fuel
raised
to

about
$3.10
per
gallon,
yet
the
fuel
tax
per
gallon
stayed
the
same
–
53
cents

per
gallon,
meaning
that
the
effective
fuel
rate
dropped
about
17%”
2

The
fuel
tax
has
essentially
failed
to
increase
with
the
price
of
gasoline
and
the
rate

of
inflation
in
general.
In
real
terms
the
tax
revenue
generated
by
the
sale
of
gasoline

has
effectively
declined
over
the
past
couple
of
decades.
This
decline
in
revenue
is

independently
a
cause
for
concern
due
to
its
loss
of
influence
towards
government

financing;
however,
“due
to
an
increase
in
vehicle
miles
traveled
(VMT),
there
is
an

1
Hyman, David M. Public Finance: A Contemporary Application of Theory to Policy. 10th ed. Mason, OH: South-Western Cengage
Learning, 2010,2011. 5. Print.

2
Tian, Zong Z., Eric B. Herzik, and Et Al. "Nevada Vehicle Miles Traveled (VMT) Fee Study Phase 1." Nevada Department of
Transportation, Dec. 2012. Web.
<http://www.nevadadot.com/uploadedFiles/NDOT/Documents/VMT%20FEE%20STUDY%20Bk.pdf>.

3

increasing
demand
for
highway
system
expansion”3.
The
gap
between
revenues
and

expenditures
in
the
transportation
division
of
state
governments
is
widened
not

only
by
the
static
fuel
tax
level,
but
also
by
the
increased
demand
for
publically

provided
roads.
Furthermore,
roads,
although
generally
considered
a
public
good,

are
more
accurately
described
as
congestible
public
good.
This
title
suggests

“crowding
or
congestion
reduces
the
benefits
to
existing
consumers
when
more

consumers
are
accommodated”4.
Because
of
the
eventual
congestion
of
this
public

good,
an
increase
in
vehicle
miles
traveled
combined
with
an
increasing
restriction

on
state’s
infrastructure
spending
is
currently
reducing
the
benefits
of
active

drivers.
Visually,
Figure
1
in
the
Appendix
shows
the
marginal
cost
of
a
congestible

good
after
N
consumers
are
accommodated.

Finally,
to
contribute
to
the
already
falling
revenues
generated
by
a
constant

fuel
tax
rate,
the
movement
towards
more
fuel-‐efficient
cars
such
as
hybrids
has

further
reduced
the
consumption
of
gasoline.
Gasoline
may
be
viewed
as
a
relatively

inelastic
good.
Due
to
the
increasing
necessity
of
quick
transportation
by
both

consumers
and
firms,
the
aforementioned
price
increases
in
gasoline
initially
had
a

negligible
effect
on
the
consumers’
quantity
demanded
in
the
short
run.
However,

“when
it
comes
to
buying
a
new
car,
consumers
can
buy
a
more
fuel-‐efficient
one,
or

one
that
uses
an
alternative
energy
source.
Thus,
the
quantity
of
gas
demanded
falls

by
larger
amounts
in
the
long
run
than
in
the
short
run”5.
Initially,
the
constant
tax

level
may
have
been
a
minor
issue
due
to
the
constant
levels
of
fuel
consumption
in

the
short
run.
Unfortunately,
in
the
long
run,
firms
have
adapted
to
the
increasing

price
of
gasoline
by
developing
substitutes
such
as
hybrid
cars.
Consumers,
now

with
an
incentive
to
buy
more
fuel-‐efficient
cars,
will
consume
less
gasoline
in
the

aggregate.
Therefore,
total
fuel
tax
revenues
suffer
even
more
so.

Next,
before
evaluating
the
costs
and
benefits
of
the
potential
VMT
fee,
one

must
understand
a
basic
outline
of
its
characteristics.
There
have
been
a
variety
of

techniques
suggested
by
several
different
studies,
but
researches
have
suggested

some
of
the
more
promising
options.
Mileage
metering
based
on
fuel
consumption

estimates
the
charges
levied
on
the
consumer
when
purchasing
gas,
which
is
based

on
each
vehicles
fuel
economy
rating
as
well
as
other
attributes.
This
information

can
be
transmitted
through
a
registration
sticker
embedded
on
each
vehicle.6
This

method
is
praised
for
having
a
relatively
low
cost
and
simple
transition
relative
to

alternative
methods.
Conversely,
at
the
other
extreme
is
the
option
titled,
coarse-‐
resolution
GPS-‐based
metering,
which
is
the
method
used
in
The
Oregon
Department

of
Transportation
Pilot
Project.
This
method
uses
GPS
technology
to
“identify
the

3

4
Learning, 2010,2011. 151. Print

5
Taylor, John B., and Akila Weerapana. Principles of Microeconomics. 6th ed. Boston: Houghton Mifflin, 2009. Cengage Learning.
Web.

6
Slone, Sean. "Vehicle Miles Traveled Fees." The Council of State Governments, 2009. Web. 01 Apr. 2013.

4

jurisdiction
in
which
travel
takes
place
without
identifying
the
specific
route
of

travel”
7
This
method
may
be
more
accurate,
and
therefore
more
efficient,
than
the

previous
fuel
consumption
based
measurement.
Furthermore,
this
option
may
be

capable
of
achieving
low
cost
production
if
developed
on
a
large
enough
scale.
There

are
several
other
methods
described
in
the
various
studies;
however,
the
VMT
fee

generally
consists
of
two
main
components:
the
tracking
of
vehicle
miles
traveled

and
the
charge
for
traveling
those
miles
levied
at
the
fuel
station.
The
common

features
of
the
VMT
fee
across
studies
are
effectively
portrayed
by
Figure
2
in
the

Appendix,
which
is
taken
directly
from
the
study
conducted
by
the
Oregon

Department
of
Transportation.8
The
next
section
will
begin
the
cost
benefit
analysis

that
must
ensue
in
order
to
effectively
determine
if
the
project
is
worth

consideration.

Cost
–
Benefit
Analysis

In
Public
Finance,
cost-‐benefit
analysis
is
used
to
determine
the
merit
of

potential
public
projects.
The
main
intention
of
this
analysis
is
to
ensure
that

projects
with
marginal
social
costs
that
exceed
the
marginal
social
benefits
are
not

considered.
Conversely,
projects
that
may
yield
positive
net
benefits
pass
this

screening
process
and
are
likely
to
be
pursued.
The
three
main
steps
involved
in
this

analysis
are:
Enumerating
the
costs
and
benefits
of
the
proposed
project,
evaluating

these
costs
and
benefits
in
dollar
terms,
and
discounting
future
net
benefits
to
a

present
value
comparable
with
the
current
costs
of
pursuing
the
project9.
To
begin

this
process,
the
advantages
(benefits)
and
disadvantages
(costs)
of
the
project
must

first
be
listed
and
evaluated.
Because
this
paper
intends
to
merely
outline
the

process
of
this
cost-‐benefit
analysis,
it
will
not
make
use
of
specific
enumerated
or

dollar
values.

Benefits

Of
all
the
suggested
advantages
in
the
conducted
studies,
the
most
obvious

and
easily
quantified
benefits
are
those
relating
to
the
potential
revenue
realized

after
the
reform
has
been
put
into
place.
In
2007,
RAND
(Research
ANd

Development)
Corporation’s
evaluation
of
the
VMT
tax,
Final
Report
-‐
Volume
III:

Section
1
-‐
Technical
Issues
Papers,
concludes
that
VMT
tolling
would
have
significant

revenue
potential
limited
only
by
political
considerations.
Furthermore,
the
study

predicts
that
the
revenue
generated
would
be
much
more
stable
due
to
its

7

8
Whitty, James. "The Revised VMT Taxation Concept and A New Road Usage Charge Pilot Program." The Oregon Department of
Motor Vehicles, 08 Feb. 2012. Web. 01 Apr. 2013.

9

5

dependency
on
vehicle
travel,
which
also
determines
road
maintenance.
Finally,
the

revenues
generated
would
be
more
equitably
distributed
because
VMT
fees
can

measure
the
amount
of
travel
occurring
in
different
jurisdictions
and
distribute

revenue
accordingly.
10
For
the
purpose
of
the
cost
benefit
analysis,
these
revenues

must
first
be
forecasted
into
the
future.
One
must
predict
the
aggregate
miles

traveled
per
state.
Next,
the
total
miles
traveled
must
be
applied
to
the
VMT
system

chosen
by
the
State
Government.
As
will
be
described
in
following
sections,
the

Nevada
study
outlines
a
variety
of
VMT
structures
that
will
yield
alternative
revenue

levels.
Finally,
the
benefits
calculated
in
this
manner
must
be
discounted
in
order
to

compare
them
with
the
costs
of
pursuing
the
project.

A
second
benefit
put
forth
by
various
researches
is
the
bold
claim
that
the

movement
towards
a
vehicle
miles
travel
based
tax
system
will
improve
not
only
the

economic
efficiency
of
resource
allocation,
but
also
that
the
change
may
improve
the

equity
of
tax
shares
levied
on
users.
As
in
the
previous
revenue
analysis,
this

statement
also
depends
on
the
tax
structure
chosen
by
the
state.
To
better

understand
the
quality
of
this
proposed
benefit,
one
must
understand
these
various

system
structures.
The
paper
published
by
the
Nevada
Department
of

Transportation
outlines
a
variety
of
systems.
The
four
main
categories
described
are

the
single
fee
system,
the
multiple
fee
system,
the
generalized
user
fee
system,
and

the
pay-‐as-‐you-‐go
system.

The
single
fee
system
charges
a
flat
tax
rate
per
mile.
The

multiple
fee
system
groups
vehicles
into
categories
based
on
their
makes,
models,

years
of
production,
etc.
and
charges
a
different
fee
based
on
the
given
classification.

The
generalized
user
fee
system
incorporates
all
of
the
aspects
of
the
multiple
fee

system
while
also
defining
the
charge
as
a
function
of
the
time
of
day,
area
of
travel,

etc.
Finally,
the
pay-‐as-‐you
go
system
can
adopt
any
of
the
previously
described

structures,
but
the
total
charge
must
amount
to
some
predetermined
value

predicted
for
total
transportation
expenditures
in
a
fiscal
year.
This
method
would

avoid
an
account
deficit
or
surplus
from
accumulating.11
These
various
structures

listed
for
the
VMT
fee
generally
increase
in
efficiency
as
they
become
more
complex.

The
single
fee,
which
is
the
simplest
of
the
four
systems,
would
charge
a
flat

rate
per
mile
traveled.
Assuming
that
the
quantity
of
publicly
provided
roads
has

been
increasing
as
suggested
by
the
study,
one
may
consider
transportation

spending
as
a
public
good.
Because
each
individual
would
pay
the
same
tax
share,

the
single
fee
model
may
be
viewed
in
the
context
of
the
political
equilibrium
model

under
majority
rule.
The
quantity
of
transportation
spending,
therefore,
will
depend

on
the
uniform
tax
rate
chosen,
as
well
as
the
marginal
benefit
experienced
by

individual
consumers,
in
the
aggregate,
resulting
from
transportation.
Figure
3
in

the
Appendix
outlines
the
determination
of
this
equilibrium.
Assuming
constant

10
"Final Report - Volume III: Section 1 - Technical Issues Papers." National Surface Transportation Policy and Revenue Commission.
RAND Corporation, 19 Jan. 2007. Web. 02 Apr. 2013.

11

6

costs
for
transportation
and
infrastructure
spending,
the
average
cost
of
producing

one
‘unit
of
transportation’
is
X
dollars.
The
distribution
of
tax
shares
at
a
uniform

rate
suggests
that
each
of
the
5
consumers
in
the
graph
will
pay
a
tax
of
X/5
dollars

per
gallon.
Because
of
each
consumer’s
varying
marginal
benefits,
only
the
median

voter
will
consume
his
most
preferred
outcome
of
transportation
(N
units)
given
the

tax
share
determined
by
majority
rule.
Due
to
the
fact
that
only
the
median
voter

consumes
his
most
preferred
output,
there
are
political
externalities
present

resulting
from
the
inability
of
other
voters
to
consume
their
most
preferred
level
of

transportation.
When
such
externalities
are
present,
additional
gains
to
voters
are

possible
either
through
changes
in
output
or
tax
shares.12
This
inefficiency
may
be

viewed
as
point
A
in
Figure
4
in
the
Appendix.
At
this
point,
Pareto
Optimality
has

not
been
achieved
because
there
are
potential
gains
in
well
being
to
some
without

reducing
the
well
being
of
others.13

The
progression
to
more
sophisticated
structures
of
the
VMT
tax
system

result
in
increases
in
efficiency
and
equity.
The
movement
from
the
single
to

multiple
fee
based
system
allows
for
the
cost
of
gasoline
to
more
accurately
reflect

the
marginal
benefits
experienced
by
individual
consumers.
Consumers
will
also

contribute
funds
that
more
accurately
reflect
the
car
they
drive,
and
therefore
the

damages
caused
to
the
transportation
infrastructure,
environment,
etc.
This
system

may
be
seen
again
in
Figure
4
as
a
movement
to
point
B.
The
change
in
the

allocation
of
costs
based
on
vehicle
make,
year,
etc.
results
in
a
more
equitable

distribution
of
taxes
reflecting
the
costs
associated
with
an
individuals
operation
of

their
vehicle.

Furthermore,
the
use
of
a
more
advanced
system
more
accurately

reflects
the
benefit
principle
of
taxation
in
which
the
taxes,
or
marginal
costs,
of

individuals
using
a
government-‐provided
good
are
equal
to
their
marginal
private

benefits.

Moving
on,
the
generalized
user
fee
system
incorporates
not
only
the

characteristics
of
the
vehicle
but
also
the
time
of
day
and
area
associated
with
that

individual’s
traveling.
This
method
bears
the
heaviest
contrast
to
the
gas
tax,
which

fails
to
effectively
allocate
taxes
to
those
who
contribute
the
most
damage
to
the

transportation
infrastructure.
In
this
case,
the
consumption
of
transportation
can
be

seen
as
generating
negative
externalities.
The
generalized
fee
system
would
act
as
a

corrective
tax
to
internalize
this
negative
externality
and
force
those
who
induce

greater
costs
to
pay
greater
taxes,
which
would
cause
those
with
more
damaging

vehicles
to
incorporate
the
marginal
external
costs
of
their
consumption
of

transportation
in
their
marginal
analysis.
14
This
internalization
can
be
seen
in

Figure
5
of
the
appendix.

On
the
graph
the
original
Marginal
Private
Cost
fails
to

incorporate
the
external
costs
associated
with
driving
a
vehicle
producing
negative

externalities.
Furthermore,
the
cost
does
not
consider
the
time
of
day
the
vehicle
is

12

13
Ibid

14
Ibid

7

being
used.
The
cost
of
accommodating
an
additional
vehicle
during
‘rush
hour’
will

be
much
higher
than
the
cost
of
accommodating
the
same
vehicle
in
the
middle
of

the
night.
The
generalized
user
fee
system
forces
the
consumer
to
incorporate
those

costs,
which
results
in
the
shifting
of
the
MPC
line
to
the
MSC
line.
The
new

equilibrium
occurs
at
point
B.
The
tax
revenue
collected
by
the
internalization
is

P1CBP2.
Vehicle
miles
traveled
are
also
reduced,
which
will
likely
reduce
congestion

during
peak
driving
hours.
The
increased
revenue
may
be
used
to
construct
new,

less
congestible
roads,
develop
even
more
fuel-‐efficient
technology,
etc.
This

analysis
supports
the
Council
of
State
Governments
claim
that
“the
main
goal
of
the

VMT
fee
is
to
make
the
principle
of
‘the
user
pays’
more
of
a
reality”15
Referring
back

to
Figure
1,
this
analysis
would
suggest
that
the
marginal
cost
incurred
at
point
N

would
begin
being
compensated
for
by
the
consumers
contributing
to
congestion.

Finally,
this
reform
would
further
contribute
to
the
attainment
of
efficiency
and

equity
represented
by
the
movement
from
Point
A
to
Point
B
on
the
Utility-‐
Possibility
curve
of
Figure
4.

One
final
point
on
the
efficiency
of
the
VMT
tax
is
worth
noting.
Assuming
the

implementation
of
the
generalized
user
fee
system,
one
may
assume
that

transportation
infrastructure
moves
closer
to
the
spectrum
of
a
pure
public
good

due
to
the
reduced
congestion
resulting
from
higher
fees
at
peak
driving
hours.
If

one
accepts
this
assumption
then
the
efficient
output
of
vehicle
miles
traveled
will

occur
at
the
point
where
the
“sum
of
marginal
private
benefits
of
consumers
equals

the
marginal
social
cost
of
the
good”16.
Because
the
generalized
user
fee
system

incorporates
all
conceivable
costs
of
vehicle
miles
traveled,
one
may
assume
that

each
individual
contributes
a
tax
share
equivalent
to
their
marginal
private
benefit.

This
equilibrium,
called
the
Lindahl
Equilibrium,
is
portrayed
in
Figure
6
of
the

appendix.
Unlike
the
political
equilibrium,
consumers
are
assigned
a
‘Lindahl
Price’,

which
reflects
their
marginal
private
benefit.17
Therefore,
the
political
externalities

present
in
the
political
equilibrium
model
are
eliminated
with
a
more
sophisticated

VMT
fee
structure.
The
efficient
output
produced
is
Q*,
and
the
tax
paid
by
each

consumer
is
equivalent
to
the
marginal
private
benefit
enjoyed
by
that
consumer

when
vehicle
miles
traveled
equals
Q*.

Finally,
the
pay-‐as-‐you-‐go
fee
system
may
incorporate
any
of
the
previously

discussed
methods;
however,
this
method
first
estimates
the
total
transportation

expenditures
for
an
upcoming
fiscal
year.
Based
on
this
prediction,
the
total
vehicle

miles
traveled
per
area
are
also
predicted.
Next,
the
VMT
fee
can
be
determined

15

16

17
Ibid

8

based
on
these
predictions,
which
will
result
in
the
prevention
of
a
surplus
or

revenue
resulting
for
the
VMT
fee.18

In
the
context
of
the
cost-‐benefit
analysis,
the
various
benefits
discussed

above
must
been
evaluated
in
dollar
terms,
summed,
and
discounted
from
their

future
to
present
values
using
the
social
rate
of
discount.
The
social
rate
of
discount

‘should
reflect
the
return
that
can
be
earned
on
resources
employed
in
alternative

private
use’19.

Costs

The
next
step
in
evaluating
the
VMT
project
is
determining
the
total
costs
or

disadvantages
of
the
project.
Some
of
the
costs,
like
the
benefits,
are
obvious
and

take
the
form
of
expenditures
used
to
finance
the
project.
However,
some
costs
are

more
difficult
to
enumerate.
Obviously,
the
costs
incurred
depend
directly
on
the

structural
system
used
to
implement
the
tax.
This
section
will
outline
the
forecasted

costs
based
on
the
existing
research.
Furthermore,
it
will
attempt
to
incorporate

actions
that
may
be
taken
to
minimize
the
more
concerning
costs.

The
costs
most
easily
evaluated
are
the
initial
capital
expenditures
required

to
finance
the
project.
The
aforementioned
RAND
corporation
predicts
that
the

initial
investment
will
be
quite
substantial:

“Onboard
equipment
would
likely
cost
around
$100
per
vehicle.
There
would

also
need
to
be
additional
upfront
investment
in
the
information
systems

required
to
collect
and
distribute
revenues.
After
that,
automation
should

yield
cost-‐efficiencies
once
the
investments
are
made”20.

Like
most
government
projects,
the
majority
of
the
investment
costs
are
incurred

during
the
early
stages
of
the
project.
After
the
projects
completion,
costs
drop

substantially
as
benefits
begin
to
be
realized
simultaneously.
The
only
remaining

expenditures
after
this
initial
investment
are
maintenance,
administration,

enforcement,
etc.

These
initial
implementation
costs
obviously
increase
with
the

sophistication
of
the
system
that
is
chosen.
The
Mileage
Metering
Based
On

Consumption
System
mentioned
earlier
would
obviously
have
a
very
low
cost.
The

single
fee
system
is
also
expected
to
have
a
relatively
low
cost.
As
expected,
more

complex
systems
such
as
the
multiple
fee
system
and
the
generalized
user-‐fee

system
will
have
“additional
costs
to
implement
the
various
user
fee
systems

18

19

20
"Final Report - Volume III: Section 1 - Technical Issues Papers." National Surface Transportation Policy and Revenue Commission.
RAND Corporation, 19 Jan. 2007. Web. 02 Apr. 2013.

9

because
data
on
gas
efficiency
has
to
be
obtained
for
all
makes
and
models”21.
One

can
see
the
correlation
developing
here
in
which
the
models
that
yield
the
highest

efficiency
tend
to
also
yield
the
highest
implementation
costs.
Therefore,
effective

cots-‐benefit
analysis
is
necessary
to
determine
whether
the
marginal
social
benefits

are
less
or
greater
than
the
marginal
social
costs.

Some
of
the
other
costs
addressed
by
the
current
research
are
the
costs
of

enforcement,
administration,
transition,
etc.
According
to
the
Oregon
Study,
the

costs
of
transitioning
can
be
minimized
via
the
‘pay
at
the
pump
system’.
The
study

goes
on
to
outline
the
methodology
that
should
be
used
the
total
costs
of
the
project:

“Administration
of
the
VMT
charge
is
automated
and
integrated
easily
into

existing
transaction
processes…The
costs
would
include
capital
costs
for

mileage
reading
equipment
at
service
stations,
costs
of
on-‐vehicle
equipment

to
be
determined
by
auto
manufacturers,
and
state
operating
costs
for

auditing,
enforcement,
administration,
and
communication”22.

The
Oregon
Study
essentially
supports
the
conclusions
held
by
the
RAND

corporation
that
the
initial
implementation
may
be
somewhat
costly,
but
the
system

will
eventually
become
low
cost
and
self-‐sustaining
while
yielding
high
net
benefits

into
the
foreseeable
future.
This
process
is
also
not
intended
to
occur
rapidly.
The

Oregon
study
predicts
that
the
entire
process
will
occur
over
a
period
of
about
ten

years
once
it
has
begun.
Oregon’s
proposal
can
be
seen
as
incremental
budgeting,

which
“bases
the
current
years
budget
on
the
previous
year’s
budget
with
only

minor
changes
in
funding
levels
for
various
programs
included
in
the
budget”23.

Obviously,
such
a
radical
change
in
the
daily
operations
of
nearly
all
businesses
and

households
cannot
occur
too
rapidly.
Rather
the
process
must
be
somewhat
slowly

adopted
in
order
to
allow
necessary
time
to
accommodate
the
reform.

Finally,
arguably
the
biggest
cost,
which
is
inconveniently
also
the
most

abstract,
is
the
cost
of
privacy
to
those
who
feel
they
are
being
‘tracked’
by
the
VMT

fee
system.
In
the
literature
review
section
of
the
Nevada
Study,
the
research
states

“one
study
revealed
that
no
matter
how
clearly
the
privacy
protection
strategies

were
explained,
there
were
still
people
who
were
against
the
idea
of
using
GPS

technology
for
charging
mileage
user
fees”24.
Obviously,
a
drastic
change
in
the

21

22

23

24

10

carrying
out
of
everyday
operations
will
meet
some
political
opposition.
The

solution
to
such
a
problem
is
to
develop
solutions
to
the
skepticism
of
the
systems

critics
and
to
effectively
inform
the
public
of
such
solutions.
The
Oregon
study

performs
the
latter
by
introducing
the
fact
that,

“The
on-‐vehicle
device
designed
did
not
send
an
identifying
signal
out
to

denote
vehicle’s
real
time
travel.
Thus,
a
vehicle’s
movements
were
not

tracked
by
anyone.
Also,
the
on-‐vehicle
device
did
not
retain
any
travel

history.
No
one,
therefore
with
a
search
warrant
or
court
order
could
obtain

that
travel
history
because
no
travel
history
exists”
25

This
solution
actually
sounds
quite
promising.
The
argument
gains
some

momentum
when
one
introduces
the
fact
that
most
modern
vehicles
have
GPS

technology
embedded
in
them
already.
Furthermore,
the
development
of

information
technology
has
incorporated
GPS
components
into
everything
from

laptop
computers
to
mobile
phones,
which
most
consumers
are
already
likely
to

possess.
Unfortunately,
the
proposed
solution
is
only
a
small
portion
of
the
cost
of

privacy.
The
true
bulk
of
the
cost
emerges
in
the
communication
and
persuasion
of

the
public
that
this
solution
is
actually
viable
and
legitimate.
These
political

transaction
costs
include
all
of
the
“time,
effort,
and
other
resources
expended
to

reach
and
enforce
a
collective
agreement”26.
Despite
how
practical
the
VMT
tax
may

be
in
theory,
informing
and
persuading
the
public
may
be
the
largest
milestone

standing
in
the
way
of
its
implementation.

Like
the
benefits
of
the
project,
the
costs
must
also
be
summed,
so
that
the

two
can
be
compared.
The
costs
that
occur
in
the
future
may
also
be
discounted
to

their
present
value;
however,
unlike
benefits,
many
costs
are
generally
incurred

immediately
and
represent
their
present
value
when
they
are
expended.

Conclusion

After
evaluating,
enumerating,
and
discounting
all
relevant
costs
and

benefits,
there
are
two
methods,
which
may
be
used
to
determine
the
viability
of
the

project.
The
net
benefit
criterion,
which
discounts
the
summation
of
the
difference

between
benefits
and
costs,
can
be
used
to
rank
a
specific
project.
If
the
calculated

value
is
positive,
then
the
project
is
worthy
of
being
considered.
The
second
method,

the
Benefit-‐Cost
ratio,
operates
similarly
but
rather
calculates
the
ratio
of
the

summation
of
discounted
benefits
divided
by
costs.
Projects
evaluated
in
this

25

26

11

manner
pass
the
screening
for
consideration
if
the
calculated
value
is
greater
than

one.27

After
conducting
this
previous,
positive
economic
analysis,
the
final
step
for

informed
policymakers
and
economists
is
to
make
a
normative
economic
judgment.

Personally,
without
doing
the
extensive
calculations
and
developing
proxies
for
the

more
abstract
costs
and
benefits,
I
feel
the
project
seems
viable.
Obviously,
the
fuel

tax
is
failing
to
finance
the
increasing
demand
for
transportation
spending,
and
a

drastic
change
is
needed
to
compensate
for
the
growing
deficit.
However,
this

normative
analysis
is
merely
an
opinion.
Unfortunately,
“it
remains
difficult
to

measure
the
benefit
of
government
goods
and
services
accurately
because

differences
of
opinions
exist
regarding
what
benefits
and
costs
to
include
and
how

to
value
the
output
of
various
projects”28.

27

28
Hyman, David M. Public Finance: A Contemporary Application of Theory to Policy. 10th ed. Mason, OH: South-Western
Cengage Learning, 2010,2011. 255. Print.

12

Appendix

Figure
1:
Congestible
Public
Good

MC
Per
User

0

1
N

Marginal
Cost

13

Figure
2:
The
Oregon
Study
Model

14

Figure
3:
Single
Fee
System
Political
Equilibrium
Under
Majority
Rule

ΣMB

X
AC=MC

MB1

MB2

MB3

MB4

MB5

X/5

N

Figure
4:
Utility
Frontier

MB,
MC,
T

Vehicle
Miles
Traveled

Person
A

B

A

15

Figure
5:
Internalization
of
Negative
Externality

MPC+T=MSC

MPC

P2
B

A

C

P1

D=MSB

Figure
6:
Lindahl
Equilibrium
Using
The
Generalized
User
Fee
System

E

MC=AC=MSC

D=ΣMBi=MSB

Person
B

Vehicle
Miles
Traveled

Price,
Benefit,
and
Cost

Marginal
Benefit
and
Marginal
Cost

16

MBA

MBB

MBC

Q*

Vehicle
Miles
Traveled

VMT Research Paper

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