Question

Higher unemployment caused by the recession and higher gasoline prices have contributed to a substantial reduction during 2008 in the number of vehicles on roads, bridges, and in tunnels. According to The Wall Street Journal (April 28, 2009), the reduction in demand for toll bridge and tunnel crossing created a serious revenue problem for many cities. In New York, the number of vehicles traveling across bridges and through tunnels fell from 23.6 million in January 2008 to 21.9 million in January 2009. “That drop presents a challenge, because road tolls subsidize MTA subways, which are more likely to be used as people get out of their cars.” In an apparent attempt to rise toll revenue, the MTA increased tolls by 10 percent on the nine crossings it controls.

Answer 1

Recession is that phase of business cycle when the decline in economic activity lasts for a prolonged period of time . This causes reduction in production , growth , demand for labor etc . So unemployment rises . This causes fall of demand for vehicles . Higher gasoline prices also contribute to the same since gasolin is an input to run vehicles . As there is reduction in number of vehicles the usage of toll bridge and tunnel crossing is reduced . So the government revenue earned from toll tax and other vehicular taxes are reduced . These toll taxes are used to subsidize subways or the public transport run by government . So if revenue is declined the government will have to reduce subsidies also .

But attempting to raise the toll revenue , by increasing toll can also have a detrimental effect . People might avoid vehicles even more if they have to pay more taxes . Such a situation can only be controlled by controlling the price of gasoline by increasing its supply or expansionary policies to reduce recession .