Equity in Transit Finance: Distribution of Transit Subsidy Benefits and Costs Among Income Classes

Abstract

Transit subsidies in the United States increased eleven-fold between 1970 and 1979. One of the key justifications of this growth was the belief that the poor would be the primary beneficiaries. The purpose of this article is to determine to what extent the poor have in fact benefited and to what extent they have born the tax costs of subsidies. To ascertain the net distributional effect, this study allocates the benefits and tax burdens of transit subsidies among income classes. User benefits are apportioned to income classes on the basis of the income distribution of the riders of each of the various types of transit service and the degree to which each type of service is subsidized. The distribution of tax costs is calculated from the mix of taxes used to finance transit subsidies and the percentage contribution from each level of government. Overall, it is found that transit subsidization redistributes income from high-income to low-income classes but that it is not very effective in targeting benefits to the poor. The current transit program is therefore not primarily justifiable on the ground of progressive redistribution. Although it would be possible to increase progressivity, the necessary modifications in the program might conflict with other objectives of transportation policy.

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