Policy Forum: The Public Transit Tax Credit--Ridership and Distributional Impact

This article discusses the non-refundable public transit tax credit, which was introduced as a targeted incentive to promote public transit. The author provides an overview of the empirical literature studying the impact of the tax credit and finds that there is no evidence that the credit has had the intended effect on ridership. Since a tax credit not only creates incentives but also transfers income across households, the author also assesses the distributional impact of the tax credit. He finds that it was used disproportionately by taxfilers in wealthy households relative to those in lower-income households, thereby contributing to income inequality. However, in the author's view, the perceived political value of the tax credit may prevent its abolition despite evidence of its inefficiency.