Highway Costs and Revenues in Quebec: Evidence and Analysis

The aim and scope of this paper are strictly limited to answering two simple questions, by using a subset of the tangible capital stock owned by the public sector. The first is the following: does the "road industry" run a surplus or a deficit? The second question is expressed in a like manner: is the state of real net capital stock on highways and streets optimal from an intertemporal economic efficiency? The statistical computations and the economic analysis are restricted to the Province of Quebec for the period 1971-1993, original data being easily available for the Ministry of Transportation and municipalities. The proposal for implementing charges associated both with scarce capacity and scarce durability is a natural economic response in answer to the two fundamental questions. The state of Quebec public finances offers a golden opportunity to put in place a policy that shifts from reliance on fuel taxes and weight-graduated license fees to direct kilometrage charges steeply graduated with respect to axle loads. However, efficient pricing to regulate demand for highway services and efficient investment to minimize the total public and private cost of providing them should not be a way to increase taxes. Its implementation should necessarily be associated with a tax-reduction package, either on the provincial sales tax or on the personal income tax. Other short term political solutions, such as regulation to decrease the flow of traffic on some parts of the network, for instance, will postpone the adjustment process. As delayed intervention costs increase at an exponential rate, the financial burden will be higher for the taxpayers in the future. For the covering abstract of this conference see IRRD number 872753. (A)