Highway tolls rise up to 40 percent more on roads that have electronic tolling than they do on roads with cash toll collection, economist Amy Finkelstein has found. And it’s likely because the politicians think that you won’t notice.
In a recent study, Finkelstein notes that as drivers on the road start paying the toll electronically rather than with cash, lawmakers no longer wait for non-election years to raise taxes.
If you need to drop two quarters in a toll bucket, you likely have a good idea how much the toll is, she says. But when you pay electronically, most people have no idea how much the tolls costs. Just like Finkelstein herself.
Over a period of 18 months, she and her fiancé, MIT economist Ben Olken, often drove from Boston to New York to plan their wedding in Manhattan.
“We made this trip several times, and it’s eight hours in the car roundtrip,” she says. “We’re both economists, so to keep ourselves entertained, we’d figure out depreciation of the car, the cost of gas, and cost of tolls.” Suddenly, though, the couple realized they had no clue how much they were paying in tolls, because they subscribe to EZ-Pass, Massachusetts’ electronic tolling system.
Back at MIT, another colleague mentioned to Finkelstein that many policymakers in Washington were concerned that when taxes are less visible, politicians raise taxes more than they would if they were more visible.
“It seemed like a plausible hypothesis, but I didn’t have any empirical evidence,” she says. “Then our conversations in the car clicked in my mind. I began to wonder if it’s easier to raise tolls once a road installs electronic toll collections.”
To test the hypothesis, she collected 50 years of data from 123 different toll facilities in the United States. Next she and her group went to an open-air antique show in western Massachusetts, the Brimfield Fair, which is located right off a toll road. They asked 214 people how much they had paid in tolls to get there, and then asked if they had paid cash or electronically.
Sixty-two percent of the people who paid electronically had no idea how much the toll cost. “You could tell immediately who had paid electronically,” she says, adding that those people screwed up their faces and “gave a look, like, ‘Oh lady, I don’t know.’ And when we asked how did you pay, they all said, ‘EZ-Pass.’”
People who paid electronically guessed wrong 85 percent of the time, while the people who paid cash guessed wrong only 31 percent of the time. When cash drivers were wrong, they were off on average by 16 cents, but when electronic drivers were wrong, they were wrong on average by $1.33.
“The main finding of the paper is that tolls were about 20 to 40 percent higher under electronic toll collection than they would be under cash toll collection,” she says, adding that she noticed a pattern after examining the data and recording when each state had added a toll road.
“Once 60 percent of the people have an electronic pass –– and don’t know how much they’re paying for tolls –– lawmakers no longer wait for non-election years to raise taxes.”
Electronic tolling began in the United States in 1987 and became widely used by 1999. The system is different in different states — I-Zoom in Indiana, I-Pass in Illinois, Fast Lane or EZ-Pass in Massachusetts. The major benefit of electronic tolling is it reduces congestion because you don’t have to wait at the tollbooth. States use toll revenue to repair, maintain, and build roads, and also to pay toll collectors, she says.
Now, with the popularity of electronic tolling, will states soon phase out cash lanes? Finkelstein is unsure, though, she notes, “in southern California, there are some highways that you just can’t get on if you don’t have an electronic pass. You have to take another road.”
The study, she says, “was a lot of fun. Now, I think about it every time I drive through a toll plaza.”
Finkelstein, now married, frequently drives 40 miles on a toll road to visit her husband’s family.
How much does she pay in tolls?
“I don’t know,” she says.
She laughs. “I have no idea.”