Urban public transit subsidies: Theory and policy analysis with an assessment of commuter rail in the greater Toronto area

In theory there are both efficiency and equity justifications for subsidizing urban transit. However, this does not necessarily imply that subsidy policies as practiced have contributed to a more efficient allocation of society's resources, a reduction in income inequality among individuals, or a reduction in fiscal capacity among local jurisdictions. It is the objective of this research to explore this cleavage between theory and policy practice by assessing the economic and redistributive impacts of providing subsidies to the public transit industry. The dissertation is divided into three main sections consisting of theory, review and a case study. The theoretical framework for the research is based on the public finance principles of efficiency and equity. These principles are placed within an urban context through a discussion of local public economy and then applied to the public transit firm to determine the theoretical justifications for transit subsidies. Following this section on theory, the dissertation turns to a review of the literature on the economic and redistributive impacts of subsidizing public transit. This review section consists of a general examination of the literature and a more focussed review based on a comparison of the American and Canadian transit industries and on an investigation into household expenditure on transportation in Canada.;The final section of the dissertation presents a case study which investigates the financing of GO Transit, the agency responsible for providing commuter rail service in the Greater Toronto Area (GTA). A description of public transit financing policy in Ontario and of the role of commuter rail in the GTA set the policy context for the case study. Thereafter, a methodology is developed to examine the social and geographical patterns of GO Transit's rail subsidy expenditures in terms of user attributes and travel characteristics as well as the jurisdictions in which they reside. The net incidence of the subsidy expenditure is estimated by assessing the tax contributions by income group to finance the subsidy and this method is also used to estimate the equity impacts of alternative arrangements for financing GO Transit. At a general level, the most important contribution of this research is to provide a conceptual and practical understanding of public transit subsidies and, through a case study of commuter rail financing in the GTA, to demonstrate two important conclusions. First, subsidies to the Canadian public transit industry have been relatively more successful than has been the case in the United States and this is closely related to differences in urban structure. Second, it is recommended that the current financial structure of GO Transit be modified either through changes to the provincial transit policy or changes to the design of the provincial crown corporation responsible for GO Transit. In the final analysis, it is difficult to separate the impact of transit subsidies from the larger issue of the relationship between transportation policy and urban structure.