Pro-poor Spending in the Transport Sector: Pro-poor Spending in the Transport Sector Transport Learning Week 2006 Robin Carruthers Transport Economist, Consultant to TUDTR


Pro-poor spending in the Transport Sector: Pro-poor spending in the Transport Sector While reduction of poverty is central to the World Bank’s corporate agenda, until now it has not figured highly in its transport agenda, particularly that for urban transport. Many of our Urban Transport projects involve more investment in city ring roads that benefit mostly middle income residents, than in facilities for pedestrians, non-motorized and basic public transport, the transport modes mostly used by the poor. Even the now fashionable Bus Rapid Transit systems do not appear to be particularly pro-poor.


What is the impact of urban transport projects on the poor: What is the impact of urban transport projects on the poor Conventional cost benefit and cost effectiveness analyses do not give a high priority to the distribution of benefits between different social groups (BUT please read our Transport Note 26 on this topic). We know little about how the poor are affected by transport facilities, and what measures would be most effective in addressing their problems. In an effort to redress this deficiency in our knowledge, we have looked specifically at the issue of Affordability.


Affordability: Affordability There are three aspects of urban transport that are relevant to the poor – Accessibility, Affordability and Availability. We have focused on Affordability because if transport is not affordable, the other characteristics are irrelevant We have reviewed more than thirty studies completed in the last decade that deal with Affordability, and based on our understanding of them have developed an Affordability Index which is easy to measure. In our next stage of work, we are looking at the effectiveness of measures that can make urban transport more Affordable to the poor


Some recent studies that deal with Affordability: Some recent studies that deal with Affordability Wuhan, China: Eastern Europe – Sofia, Bucharest, Kiev Brazil - Belo Horizonte and Sao Paulo Other Latin America – General and Buenos Aires South Asia – India and Pakistan Western Europe United States UK Africa Global


Two studies from China: Two studies from China A Lifetime of Walking Poverty and Transportation in Wuhan, September 2003 Urban Transportation Strategies in Chinese Cities and their Impacts on the Urban Poor Zhong-Ren Peng, University of Wisconsin-Milwaukee, June 2004


Bus travel to higher paid work is too expensive to make it worthwhile: Bus travel to higher paid work is too expensive to make it worthwhile As part of the preparation of an urban transport project, current users (and non users!) were interviewed to understand their travel patterns and better understand their perspective of public transport Many of the poor indicated that they could not afford to travel by bus and that this was limiting their opportunities for higher paid employment Recommendations Target infrastructure investment at pathways and cycleways in poor areas Develop public transit routes in peri-urban areas where there are currently none Enforce acceptance by bus operators of fare cards issued to poor


A study from ECA: A study from ECA


Public transport has become more expensive but quality and frequency have reduced : Public transport has become more expensive but quality and frequency have reduced Interviews were made with the employed head of household in surveys in three East European cities (Sofia, Bucharest and Kiev) Transport and utility prices have increased and previous housing subsidies have reduced or been eliminated A high proportion of employees have a right to some form of subsidized travel. For the others, journey to work costs were about 20% of income. Quality and frequency of public transport services has deteriorated. Alternative private transport does not accept travel cards


A study from Brazil: A study from Brazil


On a comprehensive Index, the poor score badly for public transport: On a comprehensive Index, the poor score badly for public transport An Index was compiled based on three measures of transport service – affordability, availability and accessibility Those with good access to subsidized metro service had the highest scores. But many poor live in less accessible and more distant suburbs where housing costs are less, and had significantly lower scores. Their accessibility to public transport is often blocked by physical features such as expressways and rivers The “vale transporte”, a directed employment subsidy for transport for low income workers does not each those in the informal sector


Two more studies from Latin America: Two more studies from Latin America 1. The Opportunities for Sustainable Urban Transportation in Medium-Sized Cities in Latin American and the Caribbean Deborah Bleviss, The BBG Group , November 2004 2. Urban Transport in Buenos Aires: Economic Crisis and Policy Responses Vivien Foster, World Bank, 2003


Three studies from South Asia: Three studies from South Asia Urban Poverty and Transport: The Case of Mumbai  Judy Baker, Rakhi Basu, Maureen Cropper, Somik Lall and Akie Takeuchi Public Transport for the Urban Poor in Pakistan: Balancing efficiency and Equity Murtaza haider and Madhav Badami Access and Mobility for the Urban Poor in India: Bridging the gap between policy and needs Madhav Badami, Geetam Tiwari and Dinesh Mohan


Three studies from Western Europe: Three studies from Western Europe Political Economy of Commuting Subsidies Rainald Borck and Matthias Wrede, Berlin 2004 Perverse Incentives: subsidies and Sustainable Development A.P. G Moor, Institute for Research on Public Expenditure, Netherlands, 2004 Redistributive Effects of Subsidies to Urban Transport in Spain Javier Asensio, Anna Matas and Jose Luis Raymond, Transport Reviews, 2003


A study from the United States: A study from the United States On the optimal fares for public transport Ian Parry and Kenneth Small, NBER Workshop, July 2002 A comparison of the energy efficiency of transport subsidies in Los Angeles, Washington, London and Brussels. The conclusion is that peak period fares are below optimum but off-peak fares are above. Affordability and impact of subsidies on the poor did not enter their mathematical models


Another study from the United States: Another study from the United States Transport subsidies, system choice and urban sprawl Jan Brueckner, University of Illinois, November 2003 This study examined the effect of transport subsidies on the spatial expansion of cities. It concluded that subsides – whether for public or private transport – tended to encourage urban sprawl and make cities less livable. The rich favor transport systems with high money cost and low time cost, whereas the poor prefer the opposite. Ironically, the high money cost systems result in less urban sprawl


Three studies from the UK: Three studies from the UK A Review of Bus Subsidies Department for Transport, July, 2002 Obtaining Best Value for Public Subsidy for the Bus Industry Commission for Integrated Transport, March 2002 Social exclusion and the Provision of Public Transport Department of Transport, October 2000


The efficiency of subsidies: The efficiency of subsidies The UK has (or had) a large number of bus subsidies and schemes to help some disadvantaged groups. This first of these studies reviewed the effectiveness of these subsidies and their impact on transport operators Several of the subsidies described in the other studies have since been withdrawn or their value reduced (especially those for students and the elderly)


Four studies from Africa: Four studies from Africa Public Transport Fare Subsidies for children and the elderly in Developing Countries Douglas Osula, Department of Civil Engineering, Ahmadu Bello University, Zaria, Nigeria Urban Mobility, Profitability and Financing of Urban Transport (Abijan, Bamoko, Harare and Nairobi, SSATP March 2001 Poverty and Urban Mobility in Conarky and Doula International Solidarity on Transport Research in Sub-Saharan Africa (financed by SSATP), September 2004 Lagos Urban Transport Project – Poverty Impact Assessment World Bank, November, 2002


A Global Study of Affordability: A Global Study of Affordability


Affordability of Public Transport in Developing Countries: Affordability of Public Transport in Developing Countries This study measured the affordability of urban public transport in twenty seven cities (more are being added). For people on average incomes and in the bottom quintile of the income distribution, an Affordability Index was calculated, based on the expenditure necessary to make sixty trips per month of ten kilometers (both global averages) Unlike the other studies it did not involve expenditure surveys since actual expenditure is already impacted by affordability. The Index can easily be compiled from actual fares and from IMF statistics of income distribution


Results – least Affordable Public Transport: Results – least Affordable Public Transport


AI - moderately affordable Public Transport: AI - moderately affordable Public Transport


AI - Most Affordable Public Transport: AI - Most Affordable Public Transport


AI - Bus Rapid Transit : AI - Bus Rapid Transit A correspondent in Bogota has calculated the AI for the TransMilenio Bus Rapid Transit System Not surprisingly, with a fare higher than the conventional bus system, it does not show up very well. How can we use this result to help interpret the help that BRT can give to the poor ? City per capita Bottom quintile Fare for 10km Affordability Index income income % U$ cents Average Bottom 20%


Inter-urban projects: Inter-urban projects Affordability considerations can also explain the success or otherwise of inter-urban toll roads Toll rates are similar or rather lower in developing compared to developed countries, since the costs of construction are also similar. But the Affordability of tolls in developing countries is much lower as the per capita income is much less But the demand projections for toll roads in developing countries rarely take Affordability into account. --- so we invariably overestimate the demand and the financial sustainability of such roads


Comparison of toll rates : Comparison of toll rates


Comparison of Affordability of Tolls: Comparison of Affordability of Tolls


How to urban public transport more affordable: How to urban public transport more affordable Non subsidy measures More competitive services to reduce costs and fares Transfer tickets to avoid multiple fares Transfer of revenues from road pricing to buses Improve infrastructure – roads, terminals, pathways, cycleways Traffic management priorities to buses


Affordability of other utilities: Affordability of other utilities It is only recently, since we have been preparing Infrastructure Strategies rather than separate Transport, Energy Telecoms and Water Strategies that we have started to take into account the combined effect on the poor of cost based tariff policies for all utilities


Mongolia – Affordability of Utilities: Mongolia – Affordability of Utilities


Types of Subsidy: Types of Subsidy Operator subsidies Capital costs Tax concessions Fuel price concessions Cross subsidies between routes User subsidies Fare regulation – low fares for all to help the poor Fare subsidies – for young, elderly, handicapped, unemployed etc Cross subsidies between routes Employer subsidies Travel vouchers for low income employees Travel tax concessions for low income employees


Direct subsidies to users: Direct subsidies to users Subsidize all fares Subsidize fares on routes to low income areas Subsidize fares for elderly, children and disabled Subsidize fares for those on minimum wages Income supplements to those on minimum wages


Subsidies to operators: Subsidies to operators Subsidy on cost of new vehicles Eliminate fuel tax for public service vehicles Profits/Employer tax exemptions for public transport operators Cross subsidies between profitable and non-profitable concessioned routes


Who funds subsidies ?: Who funds subsidies ? Taxpayers/Municipalities - subsidies to operators and passengers - compensation to operators for subsidized travel - tax exemptions to operators Operators - regulated fares if no compensation from municipality - passes to subsidized passengers if no compensation from municipality Other passengers - cross subsidies between routes or passengers Car users - cross subsidy from congestion charges Employers - Income supplements or employer taxes


How to measure the impact of a measure: How to measure the impact of a measure What measures have most impact and under what circumstances? A common index of effectiveness of a measure is L, defined as Benefits to the poor Total benefits Common values for poverty oriented policies are of the order of 0.25 to 0.50 But this is not satisfactory as a measure of how many poor actually benefit from a measure, so we also like to use D, defined as Number of poor who benefit Total number of poor


Remaining central issue: Remaining central issue How to target subsidies to the working poor? Most other disadvantaged groups Students, elderly, handicapped, unemployed can be quite easily identified. But the working poor? If the working poor live in identifiable communities or suburbs, it might be possible to the subsidize the route operators for charging a lower tariff, but often the poor are geographically dispersed so this does not work. We are looking for a measure that has a high value of L and a high value of D We have not yet found a general solution, so any suggestions would be most welcomed!