version, cannot be used to perform a full study of the impact of public transport subsidy removal on the poorest. To be able to do so, the model would need to endogenously represent the location decisions of various income groups, which is beyond its current capacity. We however can document how the budget committed to transport and housing costs would be affected by location by the subsidy removal, coupled or not with lump sum transfers and other devices, if this modification did not impact the location of the households. In the short term, this assumption is valid as relocation is characterized by high inertia. Over a longer time frame however, decisions about where to live and how much living space to consume will adjust to changed transport costs.

The urban area of Buenos Aires is characterized by sizeable inequalities in terms of socio-economic levels. We capture these inequalities in Table 4 through the disaggregation of annual household income by quintile. It can be seen that the average annual income of the richest 20% of households in Buenos Aires is about eight times that of the poorest.

||**Annual household i**|**ncome by socio-econ**|**omicquintile(US$)**||
|---|---|---|---|---|
|**1**|**2**|**3**|**4**|**5**|
|5,196|10,268|15,471|22,747|41,756|

**Table 4: Annual average income for a household in Greater Buenos Aires disaggregated by socio-economic quintile in 2012 (data source: INDEC 2013)**

# 7.1 In the short run: Detrimental to transit users

With the NEDUM-2D model we assess the distributional impact of removing the public transport subsidy and replacing it with a lump sum transfer. The lump sum transfer is distributed to each household and amounts to a little over US$ 1,000 in 2012. While this amount represents around 4% of households’ average income it is nearly 20% of the poorest budget. We place ourselves in the very short term, immediately after the policy change, when it can be safely assumed that households have not had time to adjust and move to areas within the Buenos Aires area which benefit from lower transport costs.

Map 6 shows the spatial impact of the replacement of the transit subsidy by a lump sum transfer for transit users. It displays for households that commute by transit the net impact on the evolution of residual budgets after transport expenditures of increasing public transport fares (by a factor of 3 as before) but receiving a compensatory lump sum transfer.

Map 6 shows that all transit users lose from the replacement of the transit subsidy by a lump sum transfer as their budgets after transport expenditures decrease everywhere. Even in the most central locations of the Buenos Aires urban area, the annual cost of commuting daily to jobs outweighs the lump sum. The increase in transport budget for transit users is not spatially uniform: it increases with the distance to the city center (in parallel to transit budgets) and is higher for lower income quintiles. The black dots in Map 6 represent the centroid of the census tracts where the 20% poorest households reside. It can be seen that these census tracts are often hit the hardest, simply because a given monetary increases in fares has a larger impact on their budget. Some exceptions are however found when the census tract of the poorest is close to the city center.

30