Click For Photo: https://3c1703fe8d.site.internapcdn.net/newman/gfx/news/hires/2019/freepublictr.jpg
When Luxembourg announced recently that all public transport in the country will be free from next year, this radical move was received with astonishment. After all, most nations would surely shy away from putting such strain on public finances and from antagonising those taxpayers who don't use public transport.
But supporting public transport is almost always good for the environment. So, if the finances add up, does this mean that the case for free public transport is a no-brainer?
Economists - View - Subsidies - Taxes - Goods
Economists like me view subsidies (or taxes) on specific goods as ways to better align people's decisions with what is best for society as a whole. The key question is whether free public transport is a good way of achieving this.
When thinking about whether to buy any item such as a book or an apple, we usually compare how much we enjoy using this item with what we must pay for it. In most cases, if the item is supplied within a competitive market, the price that we pay for something largely reflects society's cost of producing it, such as the use of natural resources or labour.
Case - Car - Addition - Costs - Petrol
This is not the case for driving a car, however. In addition to our own private costs for petrol and wear and tear, every car ride imposes costs on other people by polluting the air and congesting the roads. Few of us would want to fully account for these social costs when deciding whether to use the car to do the school run or the groceries. Therefore, people will often find that the benefit of another car ride exceeds the private cost, even when social costs – that pollution and congestion – exceed any social benefit. In other words, people will use their cars too much from society's point of view.
The same reasoning applies for a person's...
Wake Up To Breaking News!