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08S7A's Economics Blog
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Saturday, May 24, 2008
posted byHuiqi(:


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Hello! Here's the link to the article on the ERP rate for BKE gantry going up by 50 cents:

http://www.straitstimes.com/Latest%2BNews/Singapore/STIStory_231932.html

Comments
Type of tax: Specific tax - fixed amount of tax per usage of the Expressway
Reasons for implementing tax:
01. Control congestion and persuade more people to take public transport
02. Increase government's revenue

Demand: Price inelastic
Reasons:
01. Habit - 0730 and 0800 is the peak period whereby adults need to travel to work
02. Absence of close substitutes - everyone needs to travel by the road..(?!)
03. Necessity - the Expressway is along the route to work for some adults
04. Small proportion of income - $1 is only a meagre portion of a working adult's income
Result: Greater tax incidence on consumers

Conclusion:
Tax imposed may be ineffective in the short run
Reasons:
01. Existing vehicle owners will still use the Expressway despite the rise in ERP rate as it does not make for them to abandon their vehicles for public transport just because of the rise in ERP rate.
02. A rise in ERP rate will increase cost of production for the firms providing public transport (eg SBSTransit, CtiyCab etc), and this may tanslate into higher transportation costs for commuters. If the tax burden is transferred from the producers to consumers, then people may not find it as worthy to take the public transport than to travel in their own vehicles.

Tax imposed may be effective in the long run
Reasons:
01. The rising ERP rate, coupled with increasing fuel prices, will deter some of the license holders from buying their own vehicles and take the public transport instead.
02. Government's revenue will still increase as the rise in ERP rate will be able to compensate for the fall in demand for the Expressway.

6:22 AM