Fuel taxes and tolls in cost-benefit analysis

When a project either generates or suppresses traffic, fuel taxes and tolls should be considered in the cost-benefit analysis. In this paper we present a simple partial equilibrium model showing that under linear demand, if factor costs are the unit of account and transfer payments are netted out at the outset, then the usual rule of the half works correctly for the incorporation of tolls in the calculus of social costs and benefits, but the incorporation of fuel taxes and other indirect taxes may require a corrective term.