The effects of operating and capital subsidies on total factor productivity: A decomposition approach

Past studies relied on ad hoc associations to establish relationships betwe en productivity on one hand and operating and capital subsidies on the othe r. This article deviates from these studies. It builds on recent research b ased on private cost to derive a total factor productivity formula that inc ludes subsidy effects. It specifies an empirical model to estimate the requ ired parameters to apply the formula. The application to urban transit syst ems shows that the effects of these subsidies on productivity through techn ical change reinforce the decline in productivity.