Hans-Werner Sinn

Nationalökonomie & Finanzwissenschaft

Ifo Viewpoint

Ifo Viewpoint No. 146: The Case for Car Tolls

Munich, 8 May 2013

Germany's roads are crumbling, according to the Cologne Institute for Economic Research, and it is right: 21 per cent of federal roads and nine percent of motorways in Germany urgently require repairs, but there is no money available to make them. Doing the full extent of the work needed to address the problem would double today's annual repair costs for years to come.

One source of potential income is road tolls. With its GPS-supported toll calculation system for lorries, Germany already has an ideal, cutting-edge technology for conveniently calculating road tolls, which does not slow traffic flow and can accurately measure any stretch of road travelled. Billing road traffic is as easy as billing telephone traffic: there are no major technical or legal differences between the two concepts.

Regulating traffic flows and avoiding traffic jams are undoubtedly far more important than generating revenues. This Easter, half of Germany once again wasted valuable free and working time in traffic jams on Germany's motorways: Standing traffic and congested roads are common even when there are no bank holidays. According to the ADAC, the German automobile club, there were almost 285,000 traffic jams in Germany in 2012, and the time spent in these traffic jams totalled 4.9 billion hours. If the car passengers are attributed the population's normal age structure and if the value of the free time of working persons and pensioners is calculated based on gross wage costs (disregarding the time lost by children), this represents an annual financial loss of 126 billion euros. With a traffic control system based on road tolls, a significant share of this loss could be avoided.

The extent of the economic mismanagement on German roads, with obvious bottlenecks and poor coordination, contrasts starkly with the otherwise smoothly functioning economy that Germany is admired for around the world. It is more reminiscent of the communist economy than of a market-based economy. In reality, the communist principle that goods in short supply should not be sold at a higher price, but distributed to queues of people, applies to Germany's roads.

The ADAC would like to get rid of the traffic jams by building more roads using taxpayers' money. But that would be like giving away Volkswagen cars for free until there are no more queues at the factory gates, and asking the taxpayer to finance them. In other words, it would be like perfecting the communist principle. Road tolls are better. They generate revenues for the state that can be used to get rid of bottlenecks, and they also increase the capacity of existing roads. No new roads would have to be built because traffic flows would be reduced and evened out.

There are traffic jams everywhere in the world, but in many places traffic congestion has been successfully contained by renouncing road communism. The greatest success story comes from London, where mayor Ken Livingstone introduced a congestion charge in 2003. It now costs around 12 euros for motor vehicles to operate within the so-called Congestion Charge Zone in central London between 07:00 and 18:00 Monday to Friday. That has encouraged many people to switch to public transport instead. Cities like Oslo, Bergen and Singapore also boast positive experiences with road pricing systems, while France, Italy and many other countries demand motorway users to pay a road toll. In the USA it is customary to pay toll fees for bridges and tunnels. Road tolls encourage drivers to avoid roads that are often affected by congestion. A flat-rate road-usage toll in the form of a motorway vignette would be a possible start. It would mean that fewer Dutch people would use German motorways to travel to the South of France. More Polish people would also travel to work in Great Britain by train instead of by car. Germans would resort to flying or travelling by train instead of driving – and some borderline trips may be abandoned altogether.

A flat-rate toll fee, however, is too sweeping a measure to be ultimately convincing. It would be better to establish prices related to time periods and distance travelled, modelled on telephone call billing, which would reflect local and temporary road supply shortages. The funds generated could partly be used to finance road-building and partly to reduce vehicle tax rates.

This would be one way of achieving smoother traffic flows and help nearly everyone. Individuals who can partially avoid paying road tolls by driving at different times may possibly save more money thanks to lower vehicle tax than they would need to spend on car toll fees. Even those who are not flexible in terms of time and have to drive during the more expensive rush hours might benefit, as they would incur lower costs from being stuck in traffic jams.

Life would be pleasanter all round – and there would be more time left for the Easter bunny.

Hans-Werner Sinn
Professor of Economics and Public Finance, University of Munich, 
President of the Ifo Institute

Published in similar form under the title “Ein Plädoyer für die Pkw-Maut”, Wirtschaftswoche, No. 14, 30 March 2013, p. 41.