This paper presents an area-wide, policy-level, economic model of road taxation and investment to provide an intellectual framework for considering the distribution of local roads grants. The model considers three different principles of grant distribution, including economic efficiency and fiscal equalisation, and demonstrates their consequences by calculating the resulting grant distributions for two imaginary countries with geographical characteristics similar to Australia and England. A conclusion is that the tension between equity and efficiency is more acute in countries like Australia, with large low-density areas, than in more densely populated countries.
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