University of California Transportation Center

Governmental facilities for such services as education, health, and transportation are often small, of poor quality, and overcrowded, even when the costs are spread among all taxpayers. We also find that governments may subsidize private facilities providing the same services, or may charge admission fees at public facilities. We explain these phenomena with a model which considers two types of people, rich and poor. A majority consisting of poor people may purposely build small and low quality facilities to discourage use by the rich, thereby lowering taxes. For the same reason, the poor may benefit from an admission fee at public clubs, or even from a subsidy to private clubs they do not use.