Buenos Aires (AMBA) amount to AR$ 25 billion or around US$ 5.4 billion<sup>3</sup> in 2012 which represents close to 0.7% of Argentina’s GDP.

While public transport is subsidized in other metropolitan areas in Argentina, the subsidization rates are lower and the minimum bus fares are higher: AR$ 6 and AR$ 9.15 in Mendoza and Córdoba respectively for example compared to AR$ 3 in AMBA.

The public transit subsidies in Argentina are currently financed by the Treasury (85%) and SISTAU (Sistema Integrado de Transporte Automotor) for the remaining 15%. The SISTAU funds are based on a 18.5% tax on gasoline while the Treasury funds are channeled through the RCC (Régimen de Compensatión Complementaria). Together the Treasury funds and SISTAU finance 72% of the operating costs of public transport systems in AMBA while earnings from travel fares account for the remaining 28%.

How does this compare to other cities worldwide? These public transport subsidization levels are commonplace in developed countries; for example they reach around 70% of operational costs for the largest 20 cities in the United States (I. W. Parry and Small 2009), 55% in London, 70% in Paris (Institut Montaigne 2012) and the Millennium database reports similar figures for many developed country cities around the world (Kenworthy, Laube, and Vivier 2001). In developing country cities however, public transport subsidies are very low or non-existent. In this respect, Argentina and above all the Metropolitan area of Buenos Aires are exceptions (Basso and Silva 2014).

Beyond the general discussions about public transport subsidy merits and potential inefficiencies that are mentioned in the introduction and literature review, there are a couple of specific points that deserve to be reported here. First, public funds have an opportunity cost, meaning that when they are mobilized for financing public transit systems, they are not available for other priorities such as education, health and sanitation for example. While public funds have opportunity costs in all countries and at all times, the necessity to allocate them wisely is arguably more critical in a developing country which is recovering from a major economic crisis as occurred just above a decade ago and where fiscal resources are likely to be scarcer than elsewhere. The need to evaluate whether these resources should be sunk into public transit subsidies or not is even more pressing as Argentina is an exception in the developing world in its choice to instore a transit subsidy scheme.

Second, the design of the scheme is conducive to some inefficiencies and perverse effects. Indeed, the supply side subsidies from the government are calculated so as to cover the deficits of the private transit operators. The latter therefore do not have any incentive to rationalize their operations and seek inefficiencies in their system as this would only result in a reduction of the subsidy level received from the government.

Thirdly, the massive level of subsidies poured into the public transit systems cover only the operational costs and leave very little available fiscal resources for investments and crucial maintenance of the public transport infrastructure. The lack of investment and maintenance has led to a slow degradation of the infrastructure and to the impossibility of keeping pace with urban growth through the addition of new routes or extension of existing ones.

The Argentine government is well aware of these issues and is exploring ways in which to reduce the fiscal burden of public transport subsidies without adversely impacting the poorest 40% of households which crucially rely on transit to reach jobs and other services. In early April 2016, fare increases were

> 3 All monetary values were converted into US$ for data consistency. The exchange rate that is used throughout this exercise is AR$1 = US$0.2198. The conversion factor was retrieved from the web for the month of July 2012.

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