The primary objective of this paper is to analyze the effect of operating subsidies on transit performance. In addition to identifying the overall effect of subsidies, this paper examines whether subsidies have had differential performance impacts that depend upon system size and subsidy source. Data for the analysis come from fixed-route bus systems in the state of Indiana over a 12-year period (1983-1994). The next section reviews previous work analyzing the effects of subsidies on bus transit performance and Section 3 presents the econometric methodology used in the paper. Section 4 summarizes the available data, presents the estimated models, and interprets the results. Section 5 provides some insights on the problem of causality between performance and subsidization. Section 6 analyzes the expected effects of redistributing subsidies more towards local sources and Section 7 offers concluding comments
