The effects of public transport subsidies on demand and supply

P. H,. Bly
R. H. Oldfield


The results of statistical analysis of cross-sectional and longitudinal public transport operating statistics from 16 countries aimed at identifying the relationships between subsidy, on the one hand, and fares, service, passengers, unit costs and output per employee on the other, are reported. This study updates earlier work carried out in 1979 for the European Conference of Ministers of Transport, and uses a greatly expanded data set covering 117 individual cities in 11 countries, and aggregate national data from 16 countries, over the period 1965–1982. The statistical correlations identified between year-on-year changes in subsidy and changes in a wide range of operating indicators show that the subsidy has reduced fares and increased the amount of service operated, and each extra 1% of cost covered by subsidy probably attracts a 0.2 to 0.4% increase in passengers. However, the study also finds highly significant relationships between increases in subsidy, on the one hand, and increases in unit costs and wages and reductions in output per employee, on the other. It seems that as much as one half of subsidy has been consumed by higher costs and time-lagged regressions suggest that, in part, the increases in unit cost tend to follow subsidy rather than precede it, giving some cause for concern that the uses of subsidy are not being controlled as tightly as they might.