Should We Build High Speed 2? Case Study

Should We Build High Speed 2?
A case study evaluating the cost-effectiveness of HS2, the proposed high-speed rail link from London to Birmingham.
# 153962 | 0 words | 0 sources | 2014 | FR
Published on Jul 30, 2014 in Economics (General) , Public Administration (General) , Mathematics (General)

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From the Paper:

"In order to answer the question we need to make some preliminary assumptions: 1 We assume that the construction of the railways is a long term investment so that the government wants it to be cost effective in twenty years. 2The new high-speed train would substitute the current rail service between London and Birmingham. 3 We will compare both railways services when not all the seats available will be taken. 4 People working in the construction and maintenance of the track have the same salary and are paid by the rail company and not by the government. 5 Consumers will be treated as a single unit, without any distinction of social classes between them when assessing the economical impact on them.
"According to (2013), the government will invest L16billions in the two sections of the high-speed rail so we can assume that L8billions (L16bn/2) will be spend in the first section from London to Birmingham. This amount represents the long term investment for the high speed-speed rail link from London to Birmingham that the government wants to be cost effective in twenty years.
"We will now estimate the government's revenues generated by the taxes levied on the incomes of the people working on the construction of HS2. We know that the construction of the first section will last 8 years, from 2017 to 2025 (, 2013),it's expected to support approximately 39 000 jobs during the period and then more than 1500 permanent jobs for the maintenance of the track (HS2 Engine for Growth, [no date]).As we assumed before, all workers receive the same salary and to simplify our estimation we will take into account the average yearly income level both in London and Birmingham. The latter is estimated to be around L36 000, while the former amounts to L26 000 (Career-advice monster, 2014). The mean between the two: (36000 + 26000) / 2 = 62000 / 2 = L31 000. Let us consider that only the income taxes are revenues for the government and that they represent 20% of the income (TaxTrends, 2013). This means that 31000 x 20% = L6200 are collected yearly by the government on the income of each people working on the project. Given the fact that 39 000 persons will work 8 years for the construction, the government's revenues during this period will be equal to: 6200 x 39000 x 8 = L1 934 400 000. If we add the revenues generated by the maintenance workers during twelve years (it's a 20 years investment with 8 years of construction so 12 years of maintenance) which are: 6200 x 1500 x 12 = L111 600 000, we obtain: 1 934 400 000 + 111 600 000 = L2 046 000 000. For this number to be more meaningful we can say that, thanks to the taxes levied on incomes, more than 25% of the government's investment is reimbursed."

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