Ifo Viewpoint No. 44: Putting a Stop to Autobahn Communism

Hans-Werner Sinn
Munich 18 March 2003

The opposition of the EU Commissioner Loyola de Palacio to plans of the German government to introduce road tolls for commercial vehicles this summer is hard to understand. The Commissioner argues that tolls may only be levied to cover the construction and maintenance costs of highways. Since the highways have already been financed and amortised, only a minimum toll could be charged for maintenance costs. It is also not correct to compensate domestic truck companies by granting them vehicle tax reductions, de Palacio maintains. However, a rational economic policy based on the criterion of economic efficiency presents completely different arguments.

On the German Autobahn communism still prevails. The limited space belongs to all motorists, and this is not rationed by means of a price mechanism but by the willingness to wait out the traffic jams. The selection of traffic participants according to their traffic-jam tolerance is similar to the selection of customers once in the queues before Eastern European shops according to how long their legs could hold them up. This leads to a false allocation of scarce resources and is immensely expensive. The time spent in traffic jams or in queues could surely be used more productively. The German automobile lobby, ADAC, estimates that 4.7 billion hours are lost annually in German traffic jams. Assuming that about 80% of this time affects the working age population and with the value added of the average employee lying in the neighbourhood of €28 Euro, the economic damage is about €105 billion. Added to this is an extra €12 billion in additional fuel consumption as well as the smaller amount of depreciation for the vehicles stuck in the traffic jams. This places the annual costs of traffic jams in Germany at approximately €120 billion or 5.7% of GDP.

This is where the economics of road tolls sets in. They serve to auction off the scarce road space and to allocate it to rivalling economic uses without allowing traffic jams to arise. Traffic jams rob motorists of time they could use more productively. Tolls take their money and transfer claims on goods and services to the state. Motorists lose in both cases, but in the second case the state wins, and also indirectly taxpayers from lower taxes or those who gain from higher government expenditures.

Well-designed road tolls, staggered according to times of day and congested routes, lead to a considerably better selection of means of transport than can be expected from the self-regulation of traffic via traffic jams. Transports that supply the highest economic benefit will prevail over other transports of lesser importance. Many transports will be shifted to times of day with less traffic volume and some transports will not take place at all since it will prove more economical to intensify local supply chains instead of directing transports back and forth throughout Europe. This will improve the efficiency of the European economy in the same way as the transition from a communist command economy to a market economy did.

From an economic perspective, the financing of old or new highways is only marginally important, and the road damages from commercial vehicles or the environmental damages from air pollution are not the real issues. The greatest damage caused by a truck on the highway is from the hindrance of other motorists, the so-called congestion externality, and this damage must be paid for by those who caused it. If one haulage firm decides to also use the Autobahn, thousands of cars and other trucks driving behind arrive a bit later at their destinations. Even if only seconds are wasted, the sum can be considerable. If the 2,000 vehicles travelling behind a truck between Munich and Inglostadt between 6.00 am to 10.00 pm reach their destination, on average, only a second later, the occupants of these vehicles lose 48 minutes, according to calculations by the Ifo Institute, which is an economic damage of €22. This is the toll that should be charged in this example to internalise the genuine damages caused by the truck and which would lead to more efficient traffic control. The toll the German government wants for a similar stretch is only €12, and the European Commission thinks this is too high.

German transport policy has always focused on ploughing more roads through the cities and landscape to relieve congestion, but this has been done to excess. To understand the economic rationality of this policy, imagine how an economic system would function where a Mercedes would be free and produced at government expense so long until the queues in front of the Stuttgart factory gate are gone. Such a policy is nonsense. Even if the expansion of the German road network is not yet completed and even if many chronic bottlenecks must still be eliminated, road tolls offer a reasonable alternative for overcoming the chaos on German roads.

Many countries have long experience with road tolls. The turnpikes in France, Italy and the USA are well known. Cities like Singapore, Bergen and Oslo also have toll systems, and recently one has been introduced in London. In most cases, traffic regulation, not revenue, was the main motive.

The road fees for commercial vehicles planned by the German government is a rough instrument that does not satisfy economic demands. It does not make sense to charge a toll when the streets are empty and motorists do not hinder each other, and at rush hour the tolls should probably be much higher than is planned today. Gradation according to actual traffic volume is urgently needed as well as an extension to the regional highways. But that all will come. This is only the beginning. The electronic toll system based on GPS being introduced in Germany is flexible enough to handle these problems.

The EU itself used congestion externalities to justify road tolls in its 1998 White Book “Fair Prices for the Use of Infrastructure", and its June 1999 Directive on the charging of heavy goods vehicles for the use of certain infrastructure permits the levying of road usage fees to reduce traffic jams. It is more than surprising that the Commission suddenly shifts into reverse gear when Germany merely follows its recommendations.

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

Published as "Gegen den Autobahn-Kommunismus", Süddeutsche Zeitung, 28.2.03, p. 2.