Book Description

In 1990, the Ministry of Transportation & Highways in British Columbia introduced economic analysis for evaluating the costs and benefits of highway investments. Special techniques and methods required to provide a comprehensive economic analysis were presented in a document entitled Economic Appraisal of Highway Investment Guidebook. The Guidebook has inconsistencies as to the treatment of taxation: it is recommended that all tax components be netted out for the valuation of agency costs while certain components of taxation be included for the estimation of user benefits. The purpose of this study is to provide guidelines for the treatment of taxation for economic appraisals of Ministry projects. Related tax components in the various resource inputs in the cost categories of highway investments are identified and presented in the report. The author also provides the summary of a literature review and determines whether or not, and to what extent, taxes should be netted out in economic analysis. It was concluded that taxes should not be routinely netted out in social cost-benefit analysis and there should be different tax adjustments depending on the source of the inputs. Procedures for adjusting tax components are recommended.