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Abstract

This paper determines the deadweight loss of operating and capital subsidies by extending Tullock’s (1998) work. It finds that when both subsidies are received deadweight loss is 6.83% of total cost or $0.861 million on the average, $0.780 million when operating subsidy is received and $0.0503 million when capital subsidy is received. Decomposing the deadweight loss using regression shows that the incentive tier of the federal operating subsidy, federal labor protection, fleet size, and the number of maintenance facilities owned are positively associated with it while leasing maintenance facilities and absence of dedicated funding sources are negatively associated with it.

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