This paper determines the deadweight loss of operating and capital subsidies offered US public transit systems by extending previous research by Tullock (1997). It develops a method for calculating deadweight loss and using 2006 data for 227 single mode bus transit systems it estimates cost and share equations to obtain the coefficients needed to calculate this loss. It finds that deadweight loss from the subsidies is 6.83% of total cost or $0.861 million on the average and that operating subsidy accounts for $0.780 million of it while capital subsidy’s share is $0.0503 million. A further decomposition of the deadweight loss among its sources using regression shows that the incentive tier of the federal operating subsidy, federal labor protection (Section 13(c)), fleet size, and the number of maintenance facilities owned are positively associated with it while leasing instead of owning maintenance facilities and absence of dedicated funding sources are negatively associated with it.


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