Promoting public transport with modern pricing schemes

Abstract

Accelerated by surging inflation, policymakers in many countries have introduced cheap, flat-rate access to public transport. Such measures serve two aims: to cushion the social repercussions of inflation by reducing energy expenses, and to promote more sustainable mobility. Spain, for instance, has introduced a program that allows commuters free access to public transport for regular trips. Austria offers a nationwide ticket for 1,095 Euros per year and a regional ticket for the city of Vienna for 365 Euros per year. Luxembourg, Malta, and some cities in Europe and the United States have already introduced free public transport. This global trend towards flat fares or free public transport is based on arguments such as simplification, uniformity, and ease-of-control. Germany recently followed suit with an unprecedented reduction in public transport fares. From June to August 2022, the German government granted nationwide access to public transport for just 9 Euros per month. Germany’s experience with the so-called 9-Euro Ticket provides new insights on the impact of cheap flat-rate access to public transport. Based on our evaluation of the 9-Euro Ticket, experiences with similar programs in other European cities, and insights from economic theory, we call for a cheap and dynamic public fare system that prices peak times higher than off-peak times to avoid overcrowding during peak hours. To finance a subsidized public transport system, we propose dynamic road pricing. This would reduce the externalities of car usage by levying a per-kilometer fee that varies by congestion levels of the respective roads.