Free urban public transit has become a common political campaign slogan for mayors of some major global cities. Paris’s socialist mayor Anne Hidalgo, for example, says that it remains one of her key policy objectives. Some cities, including ten in Brazil, have already begun implementing free transit. Most of these cities are small, with an average population of 46,000. Luxembourg, a city-state with a population of 644,000, is the largest city worldwide to adopt the policy, offering it for all citizens since 2020. It’s worth noting, though, that Luxembourg boasted the highest world GDP per capita in 2022, according to the World Bank.
What is the objective in providing free urban transit? After all, city residents everywhere pay directly for services like water, gas, and electricity. What’s so special about transit that would require making it free? The cities that have adopted the policy declare that the objectives are sustainability, equity, and inclusion.
By introducing free transit, municipalities hope to persuade car drivers to switch to public transportation, reducing congestion and greenhouse gas emissions, thus meeting the sustainability objective. This argument is dubious, however. Car commuters’ motivation in their choice of transport mode is comfort and efficiency, not sustainability.
Studies have shown that the increase in public-transit use after the introduction of free service comes from people who would otherwise have walked or bicycled—choices that would already satisfy policymakers’ equity and inclusion objectives in some form. Given Luxembourg’s and Paris’s high average household income, moreover, it seems that offering free transportation for everybody is an expensive way of helping a small minority for whom commuting costs are a significant burden. It would be cheaper and fairer to provide low-income households with free passes rather than subsidizing the trips of wealthy households.
Of course, there is no such thing as “free” transport. Somebody always pays. The challenge is, therefore, to find an economic justification for spreading the cost of public transportation among people who do not use the service. Free transit has an economic justification in large airports with multiple terminals. Free shuttle trains move passengers between terminals; these trips are very short, and directly charging passengers for them would be impractical, resulting in missed flights and greater congestion. The cost of operating airport shuttle trains is charged to airlines, regardless of whether their passengers use the service. In this case, free transport obviously does not modify passengers’ behavior—it does not increase the number of shuttle trips they take, for instance.
Collecting fares in urban public transit does have a cost. Modern technology has dramatically improved the efficiency of collecting fares electronically, but fare evasion is an issue in many cities. In New York City, loss of revenue from evasion is now estimated at $700 million a year.
It may be that for short and cheap trips provided, for instance, in smaller cities, free transit can be economically justified, as fare collection and enforcement might be labor-intensive and significantly slow down bus “dwell time,” the amount of time spent either picking up or dropping off passengers at each stop. This would help explain why most cities that have adopted free transit have small populations and, therefore, shorter trips and cheaper fares than in large cities.
For the longer trips common in larger cities, fares constitute a vital part of the transit company budget, even when the government subsidizes them. The revenue shortfall caused by a free transit policy would have to be made up somewhere, probably at the expense of other public services. The equity and inclusion objective would thus be jeopardized if the transit subsidy comes out of the state’s general revenue. Indeed, at the state level, the government would need to tax households living in small cities and rural areas with much lower income and productivity than those in large cities.
Enterprises that rely on user fees for most of their revenue also have an incentive to improve the quality of their service and grow their customer base. When relying entirely on government subsidies to finance their operations, they would need to control costs, and one way to do that is to curb usage—for instance, a free subway will significantly reduce its expenses by scaling back late-night service or running fewer trains during rush hour. Free urban transit would create a powerful incentive to reduce the quality of service over time. Neither the sustainability nor the equity objective would be served.
Generally, government-provided free goods are detrimental to the economy, as they erase the price signals that households and firms use to make spending decisions. In command economies like the Soviet Union and pre-reform China, the government taxed households and firms at about 80 percent of their revenue and redistributed it in the form of free or heavily discounted goods, like extremely low rents, cheap clothing, and food. This redistribution significantly diminished individual freedom, preventing people from making personal choices in consumption.
Free urban transit might be justified when fares barely recover the cost of fare collection, which may happen in small cities. But the policy’s objectives are ill-served by subsidizing the commuting fares of middle- and high-income households.
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