The Targeting Incidence of Brazil’s Vale Transporte transit subsidy scheme

Abstract

We evaluate the targeting properties of the Vale Transporte scheme in Brazil, one of the oldest and most iconic transit subsidies in the Latin American region. We use household survey data for 26 metropolitan areas to calculate the Concentration Index and the Ω Index to determine whether benefits are accruing to workers belonging to low-income households. The results indicate that this program is badly targeted. The Concentration Index is negative in only 7 of the 26 metropolitan areas, indicating a regressive incidence of this benefit in most cities. Likewise, the Ω Index indicates that only in 3 metropolitan areas is the targeting incidence mildly progressive when the target population is defined as workers belonging to the poorest 40% of households in each city. The reason behind these results is that only formal sector workers are eligible for this benefit while many low-income individuals work in the informal sector in Brazil. In addition, since this subsidy is paid for by employers it is reasonable to expect compensating equilibrium wage effects in the formal labor market. We present evidence that suggests that this may have occurred.