The Effectiveness of Public Transit Subsidies on Ridership and the Environment: Evidence from Canada

Abstract

We analyze the public transit tax credit (PTTC) introduced by the Canadian federal government in 2006. Using disaggregate microdata from the 2006 Census and 2011 National Household Survey, we apply a quasi-experimental difference-in-difference method to isolate the causal impact of the policy on transit ridership among commuters. Our regression models control for multiple socioeconomic determinants of transit demand and include highly resolved geographical fixed effects, which allow us to account for unobserved time-varying factors at the neighbourhood scale. We find the tax credit increases ridership by between about 0.25 and 1 percentage points, depending on assumptions. The large majority of recipients of the PTTC are those that would have taken transit regardless of the availability of the tax credit. With this estimate, we then perform a basic assessment of the policy’s environmental effectiveness in terms of reductions to greenhouse gas emissions and fiscal cost. Despite its promotion as a means of curbing traffic congestion and producing better outcomes for the global climate, we conclude that the PTTC is an expensive approach to achieving either public policy objective.

Keywords: Public transit, policy, tax credit, evaluation, greenhouse gas, environment

JEL Classification: R40, H23, C23