A Public Choice Analysis of Public Transit Operating Subsidies

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Research in Law and Economics



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This paper investigates the impact of public operating subsidies on the performance of public transit systems across the U.S. and examines how political and economic factors enter into this subsidy-cost relationship. Specifically, using data on 118 local public transit agencies for the years 1984 through 1986, it is found that larger local, state, and federal subsidies translate into significantly higher operating costs per vehicle revenue hour. The adverse cost impact is particularly great for subsidies financed by state revenue sources and for federal subsidies transferred to transit systems serving small U.S. cities. State operating subsidies are estimated to account for half of the cost inflation associated with the public finance of transit deficits. This result suggests that when the bulk of a local transit system's operating deficit is financed by taxpayers residing outside the transit system's operating area, the cost share borne by local residents and, hence, their incentive to become informed about and to monitor the transit agency's performance is reduced.

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