Favored Welfare Programs and Negative Externalities: The Effect of Subsidized Transportation for the Elderly on Demand and Wages for Taxi Services

Author Name HASHIMOTO Yuki (Fellow (Policy Economist), RIETI) / KOMAE Kazutomo (University of Tokyo)
Creation Date/NO. August 2021 21-E-074
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This study examines the negative externalities resulting from limited opportunities for negotiations between government institutions. We show that the externalities caused by subsidized wheelchair-accessible vehicles (SWAV) under policies for elderly care have eroded the demand for taxis regulated by transportation policies in Japan. An increase of 10 percent of SWAV is associated with a roughly 1 percent decrease in the number of passengers and operating revenue for taxis. The increase in SWAV accounts for as much as one third of the drop in taxi usage between 2010 and 2015. Our analysis also finds that taxi drivers' wage elasticity is greater than 1, meaning that wages were reduced more than the decrease in taxi usage.

This is the English version of the Japanese Discussion Paper (19-J-053) with some additional information and changes.