The Political Economy of Urban Transit

Abstract

In most countries, the public sector interferes in the operation of urban transit in many distinct ways. In the past, public transit systems have usually been operated by the public sector itself, with pricing and investment decisions directly under political control. Many countries have begun to privatise transit companies, but even then, regulations of pricing and investment decisions usually remain. One specific aspect is that public transit is usually heavily subsidised. According to the American Public Transit Association (2006), total fares in several thousand public transit authorities in the US accounted for only 33% of operating costs and 23% of total operating and capital costs, while for Europe corresponding figures show fares cover about half of operating costs (APTA, 2005). Urban transit is obviously heavily subsidised through general tax revenue. Interestingly, automobile travel too, often does not cover the full costs of road construction and usage (let alone environmental and accident costs). Indeed, in the US, user fees (including gasoline taxes, licence fees and other charges) accounted for only 60% of total highway expenditures (Brueckner, 2005). In Europe, higher petrol taxes suggest that subsidies to automobile travel should be significantly lower. These subsidies obviously have repercussions on individual commuting choices. For instance, subsidising automobile travel may provide incentives for individuals to move further out from the city centres into the suburbs.