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.With fixed-cost fees, however, once thefee has been paid, there is no additional motivation to drive less.Marginal-cost user fees, in contrast, are tied directly to the amountone drives.Examples include fuel taxes, tolls, and parking charges.Withsuch fees, each additional unit of travel increases the amount owed, 432 Moving Los Angeles: Short-Term Policy Options for Improving Transportationand this provides a strong and continuous incentive for drivers to forgotheir least productive trips.Marginal-cost user fees including fueltaxes are thus more effective than fixed-cost fees, and far more effec-tive than general revenue instruments, in stimulating more-efficientuse of the road network.EnvironmentRating: Good.Over the longer term, increases in the price of gaslead to reductions in fuel consumption resulting from less VMT as wellas the purchase of more fuel-efficient vehicles.As a result, the elasticityof fuel consumption with respect to changes in the price of gas is evenhigher than the elasticity of VMT.Based on a review of relevant stud-ies from the transportation and economics literatures, VTPI (20078e)reported that estimates of the longer-term elasticity of fuel consump-tion with changes in price vary between 0.4 and 1.0, with an aver-age of about 0.7.This means that a 3-percent tax on the price of fuelas allowed for in Assemblymember Feuer s proposed AB 2558 legisla-tion could be expected to result in an overall reduction in fuel con-sumption of about 2 percent, helping to reduce greenhouse-gas emis-sions.The reduction in driving would also reduce emissions of local airpollutants.EquityRating: Good.Equity is a function of the allocation of costs andbenefits, and this can vary with different types of general revenuesources and user fees.Here, we compare fuel taxes with sales taxes,one of the most common alternatives for local transportation finance(Goldman and Wachs, 2003).As a mechanism for raising revenue to pay for roads, fuel taxespromote greater equity by aligning costs and benefits (Wachs, 2003b).Sales taxes, in contrast, are unlinked to use of the road network, and,for this reason, those who drive less end up subsidizing those who drivemore (all else equal), and those who do not drive at all must still fund Local Fuel Taxes 433the roads for those who do.5 Given that wealthier individuals ownmore vehicles and travel more miles on average than those from lower-income groups (Pisarski, 2005), this raises equity concerns, especiallyamong lower-income individuals who do not drive but still must payfor the roads.With fuel taxes, in contrast, the amount one pays isdirectly linked to the benefits one derives through use of the system.Those who drive more pay more, while those who drive less pay less.It should be noted that equity can be defined in different ways(Taylor, 2004).While some view the alignment of costs and benefitsas equitable, others would argue that the consideration of equity intransportation finance should be based on the ability to pay; that is, thecost burden should fall more heavily on wealthier individuals than onthose from lower-income groups.Fuel taxes perform well with respectto the first of these definitions but not the second.Fuel taxes are incomeregressive that is, though wealthier individuals typically pay moretotal fuel taxes than those from lower income brackets, poorer indi-viduals must devote a greater share of their income to paying fuel taxes.On the other hand, sales taxes are also income regressive (Sorensen,2006).In short, fuel taxes perform better than general revenue instru-ments when equity is defined in terms of aligning costs and benefits,while they are roughly comparable to sales taxes when equity is mea-sured in terms of ability to pay.A further wrinkle is added when a share of fuel-tax revenues isused to pay for transit improvements.This weakens, to some degree,the alignment of costs and benefits, in that drivers must subsidizetransit service (although to the extent that such investments stimulategreater transit patronage and thus help to ease congestion, drivers maystill benefit).That said, lower-income individuals are more likely to rely5Some may argue that those who do not drive still benefit from the transportation systemwhenever they purchase goods that have been transported across the road network, and thisis clearly so.In a system in which user fees finance the roads, however, the user fees wouldconstitute a portion of the cost of transporting goods, and such costs would be bundled intothe ultimate purchase price of each item.Thus, those who do not drive would still pay theirfair share of road maintenance and improvement costs indirectly, but they would not berequired to subsidize the road network beyond that. 434 Moving Los Angeles: Short-Term Policy Options for Improving Transportationon transit than are higher-income individuals, so this arrangement maystill be viewed as improving social equity.To sum up, when considering ways to raise revenue for bothroad improvements and transit investments, fuel taxes make the mostsense in terms of both equity and economic efficiency for theformer
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