Fiscal decentralization and urban public transport

Financing public transport through public funds is a common practice that can be justified on different grounds: equity, natural monopoly and, particularly with the increasing motorization rate, externalities produced by private transport (congestion, pollution, road accidents) especially in urban areas. In addition, there is a belief that transport investments support economic growth, in particular transit investments because they help fostering the agglomeration effect. Whether local or national tax sources should be used for subsidizing public transport is a fairly recent question, at least in Europe where, historically, countries used to be very centralized. Several national policy reviews as well as academic papers suggest that the reforms aiming at decentralizing power and responsibility for urban public transport management lead to successful outcomes. Yet, there is no literature on the effects of decentralization of tax raising on public transport provision although an increasing number of subnational governments reports a mismatch between transferred resources and devolved responsibilities and the public finance literature indicates that decentralization of finance authority can improve the results of decentralization reforms .