The effect of public transportation on commuters’ sensitivity to gas prices is
examined using a proxy for the quality of public transportation. This proxy is
measured as the difference in the individual’s predicted commute times by private
transit and public transit, estimated using the individual’s observable characteristics.
The interaction of gasoline price with this measure is found to have a significant
effect on annual vehicle miles traveled. Further, there is a strong correlation between
the quality of public transit and elasticity of demand. This indicates that public transit
could play an important role in increasing the effectiveness of gasoline taxes. This has
timely policy implications with the federal allocations for public transit infrastructure
in the 2009 stimulus bill.