Upstream vs. downstream grants: The role of public contributions in improving railway efficiency in Europe

The level of government support significantly influences the performance of European railways. However, prior analyses have largely focused on the sector as a whole, neglecting the distribution of public budget contributions between the upstream infrastructure manager and downstream service providers. This study employs a two-stage procedure involving Data Envelopment Analysis (DEA) in the first stage and a second-stage regression analysis to evaluate railway efficiency and analyze the relationship between funding structures and performance. Using a dataset covering eight European countries from 2001 to 2022, the results indicate that railways achieve higher efficiency when the upstream infrastructure manager receives a larger share of government funds, while downstream subsidies are relatively limited. Moreover, total operating contributions consistently enhance efficiency, whereas the impact of investment grants varies depending on the specification. These findings underscore the importance of balanced funding strategies that prioritize upstream contributions to foster competition and promote efficient use of public resources.