Transcript REVENUE: Swiss Case Studies

Case Study Switzerland:
Railway Investment Fund
Stefan Suter
ECOPLAN, Economic Research and Policy Consultancy
REVENUE Final Conference
Brussels, 29 and 30 November 2005
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Overview
1. Introduction (Background, questions)
2. Model implementation: MOLINOinGAMS
3. Scenarios
4. Main results
5. Conclusions
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1 Introduction
Transalpine freight transport
HGV Mt-Cenis - Brenner (in 1'000)
Key figures for the Swiss corridors:
2’000

31.5 mill. tons in 2003
(France: 33 mill.t. Austria: 39.4 mill.t.)

Share of transit transport: 77.8%
(France: 31.5%. Austria: 88.1%)

Modal split: 66% railway
(France: 20.2%. Austria: 25.1%)
1’600
1’200
800
Switzerland
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France
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
400
Austria
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1 Introduction
Swiss Policy for Transalpine Transport

Initiative for the Alps 1994: Shift from road to rail
(from more than 1.2 mill. trucks / year down to 650’000!)

Consequence: High political support for rail transport

Instruments
 Subsidies for Combined Transport
 Distance-dependent Heavy Vehicle Fee (HVF) since 2001 on all
roads
 New Alpine Railway Tunnels
 Railway investment fund
 Alpine crossing exchange (concept, first discussions)
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1 Introduction
The new railway tunnels through the Swiss Alps
Two transalpine base tunnels (approx. EUR 10 billion):
 Lötschberg: 34 km, opening 2007
 Gotthard: 57 km, opening 2015+
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1 Introduction
The railway investment fund (“FinöV” fund)
HVF
(2/3)
Fuel tax
(< 25%)
Federal government
• determines
level of revenues
• oversees fund
management
Federal Parliament
• approves credits
for specific projects
High speed
connections
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New Alpine
rail tunnels
VAT
(1‰)
PPP
Loans
FinöV
Fund
Debt limit:
EUR 2.8 billion
Improvements of
railway network
Noise
reduction
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1 Introduction
Questions

What are the welfare implications of earmarking and crossfinancing from the road to the railway sector in the case of
given investments (tunnels)?

Would it be welfare increasing to extend railway and road
capacity in the Swiss transalpine corridors?

Does welfare increase if transport pricing is adjusted taking into
account congestion and environmental costs?

Should these charges be levied in addition to or instead of
existing taxes and charges? What is the effect of “overcharging”?

What actors are the winners and losers of different RS?
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2 Model implementation: MOLINOinGAMS
Model overview

MOLINOinGAMS:
– Partial equilibrium model based on MOLINO
– Implemented in GAMS

2 Modes: Railway and road

4 Users
– Passengers low income
– Passengers high income
– Freight domestic (local, import, export)
– Freight transit

Time horizon: 40 years
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2 Model implementation: MOLINOinGAMS
Geographical scope
Road link: Gotthard (2015) (80 / 80 km):
Investment: Extension of
Peak vs. off-peak traffic
Gotthard tunnel from 2 to 4 lanes
Erstfeld
Biasca
Railway link: Lötschberg-Simplon (2007)
vs. Gotthard (2015) (88 / 68 km)
Thun
Erstfeld
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Investment: Railway base tunnels
Brig
Biasca
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2 Model implementation: MOLINOinGAMS
Pricing

Existing pricing
– Railway: Track charges
– Road: Vehicle taxes (regional gov.), Fuel tax, HVF (fed. gov.)

Existing taxation plus internalisation
– Existing pricing plus exogenous charges (congestion, environmental costs)

Congestion charging
– Marginal infrastructure and marginal external costs: Exogenous cost rates,
implemented as tolls on the link
– Congestion charges: Endogenous, only road (rail: large capacity reserves)
– No full optimisation => not social marginal cost pricing
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2 Model implementation: MOLINOinGAMS
Price changes over time: Example of road freight
Road freight toll (EUR / vehicle-trip)
200
Existing pricing
180
Taxation with internalisation
160
Congestion charging, railway investment
140
Congestion charging, railway & road investment
120
100
80
60
40
39
37
35
33
31
29
27
25
23
21
19
17
15
13
11
9
7
5
3
0
1
20
Years
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2 Model implementation: MOLINOinGAMS
Accounting module
HVF (2/3)
Rail infrastructure
manager (public)
Rail infrastructure
operator (public)
Road infrastructure
manager (public)
Road infrastructure
operator (public)
Subsidy
investment
Railway investment fund
(Lifetime-balanced
budget)
Road investment fund
(budget not balanced)
Subsidy
operation
Vehicle tax, fuel
tax, labour tax
Federal government
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Local government
HVF (1/3)
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3 Scenarios: Regulation schemes
Pricing of transalpine transport
- Existing pricing (exogenous)
- Existing taxation plus internalisation (exogenous)
- Congestion charging (endogenous congestion charge)
Road
Pricing /
taxation
Use of
revenues
Investments
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Fuel tax
HVF
Road fund
Extension of
existing tunnel
to 4 lanes
Railway
Public Treasury
Track charges
Local/national taxes
Railway fund
2 new transalpine tunnels
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3 Scenarios = Regulation schemes
Use of HVF/toll revenues and investment
• No cross-financing (2/3 road investment fund, 1/3 local government)
• Equal distribution (1/3 rail and 1/3 road investment fund, 1/3 local gov.)
• Status quo (2/3 rail investment fund, 1/3 local government)
• Green lobby solution (3/3 rail investment fund)
Pricing /
taxation
Use of
revenues
Investments
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Fuel tax
HVF
RP
Road fund
Extension of
existing tunnel to
4 lanes (2015)
Railway
Track charges
Public treasury
Local/national taxes
Railway fund
2 new trans-alpine
tunnels (2007 and
2015+ = benchmark)
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3 Scenarios = Regulation schemes
24 scenarios
Scheme
A
Scenario
Pricing
Revenue use
RU1: No cross-financing
C1
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P1: Existing transport
pricing
P2: Existing taxation
and internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P2: Existing taxation
with internalisation
P3: Congestion charging
C2
P3: Congestion charging
RU2: Equal distribution
C3
P3: Congestion charging
C4
P3: Congestion charging
C5
P3: Congestion charging
RU3: Partial crossfinancing
RU4: Full crossfinancing
RU1: No cross-financing
C6
P3: Congestion charging
RU2: Equal distribution
C7
P3: Congestion charging
C8
P3: Congestion charging
RU3: Partial crossfinancing
RU4: Full crossfinancing
A1
A2
A3
A4
A5
A6
A7
A8
B
B1
B2
B3
B4
B5
B6
B7
B8
C
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RU2: Equal distribution
RU3: Partial crossfinancing
RU4: Full crossfinancing
RU1: No cross-financing
RU2: Equal distribution
RU3: Partial crossfinancing
RU4: Full crossfinancing
RU1: No cross-financing
RU2: Equal distribution
RU3: Partial crossfinancing
RU4: Full crossfinancing
RU1: No cross-financing
RU2: Equal distribution
RU3: Partial crossfinancing
RU4: Full crossfinancing
RU1: No cross-financing
Investment
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I1: Two new railway
tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
I2: New railway and
road tunnels.
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4 Main results
Price changes (vs. benchmark)
(average prices, 2000-2040)
Mode Sub mode Existing tax. plus
internalisation
Road
Congestion charging
Peak
Off peak
Passenger
Freight
Rail
Passenger
Freight
Increase of price (toll, charge, tax)
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Decrease of price (toll, charge, tax)
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4 Main results
Earmarking of HVF/toll revenues
Change of total social welfare (present value,
in %)
(existing pricing, investment only in railway tunnels)
0.6
0.4
0.2
0.0
Benchmark
-0.2
-0.4
-0.6
-0.8
-1.0
0/3
1/3
2/3
3/3
Cross-subsidy from road to railway fund (share of net HVF
revenues)
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4 Main results
Earmarking of HVF/toll revenues
(existing pricing, investment only in railway tunnels)
Key messages:
 Once investment is decided, use a tax with low marginal costs
of public funds (MCF) to finance the investment
 Heavy vehicle fee: Low MCF, “Pigouvian-type of tax”
 For given investment: Increasing earmarking improves
result (“transport money is cheaper than tax money”)
Neglected: Benefits of an alternative use of the transport
money
Political reasoning: NART and HVF = ONE package
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4 Main results
Investment in rail only or in rail and road?
Change of total social welfare (present value, in %)
(earmarking: status quo. i.e. 2/3)
0.50
New railway tunnels
New railway and road capacity
0.40
0.30
0.20
0.10
Benchmark
0.00
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Existing pricing regime
Congestion charging
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4 Main results
Investment in rail only or in rail and road?
(earmarking: status quo case)
Key messages:
 Investment in both modes (limited switch from road to rail, low
elasticity of substitution)
Important limitations:
- Alpine-specific and growth impacts: Neglected
- No analysis of alternative road investments
- Misinterpretation = “Gotthard road tunnel is most urgent”
 Too low road transport prices increase pressure to invest:
Potential welfare gains under the existing pricing regime are
higher than with “Congestion charging”
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4 Main results
Pricing rules
(earmarking: status quo case)
0.8
Change of total social welfare
(present value, in %)
Existing taxation plus internalisation
0.7
Congestion charging
0.6
0.5
0.4
0.3
0.2
0.1
Benchmark
0.0
New railway tunnels
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New railway and road capacity
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4 Main results
Pricing rules: Decomposition of effects
Change of total discounted welfare (mill. EUR)
(earmarking and investment: status quo case)
2'500
2'000
1'500
1'000
500
-500
Welfare transport
-1'000
Welfare federal gov.
-1'500
Welfare local gov.
-2'000
-2'500
Existing taxation plus internalisation
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Total welfare change
Congestion charging
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4 Main results
Different pricing regimes
(earmarking: status quo case)
Key messages:
 A joint view of the welfare effects from pricing and revenue
use is needed
 Distributional effects between government levels matter
 Best case (full earmarking, existing pricing plus internalisation,
investment in both modes): Relevant welfare gain (EUR 215 /
capita)
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4 Main results
Equity: Domestic versus transit road freight trsp.
Change of discounted total welfare (%)
0.15
Existing taxation
plus internalisation
Congestion
charging
Existing taxation
plus internalisation
Congestion
charging
0.10
Domestic freight transport
0.05
Transit freight transport
0.00
-0.05
-0.10
-0.15
-0.20
New railway tunnels
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New railway and road capacity
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4 Main results
Equity: Domestic versus transit road freight trsp.
Key messages:
 Freight transport benefits from increased pricing AND road
investment
 High relevance of time gains through investment (could also
be through rail investment, e.g. rolling motorways)
 Transit freight traffic benefits more than domestic freight
transport (smaller price increase for transit than for domestic,
assumption on truck weight is decisive = specific case)
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5 Conclusions
Policy recommendations

Using revenues from road pricing to finance investments in
other modes can be welfare improving.

Transport pricing, investment, and revenue use must be
considered together to derive conclusions on efficiency.

Earmarking for transport or not: Benefits of alternatives?

An overall positive effect may still have winners and losers: A
sound analysis of the distributional effects is needed.
Limits: Basis is a partial equilibrium model, a general
equilibrium approach would yield additional insights
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Case Study Switzerland:
Railway Investment Fund
Stefan Suter
ECOPLAN, Economic Research and Policy Consultancy
REVENUE Final Conference
Brussels, 29 and 30 November 2005
ECOPLAN
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