Subsidy and contracting relationships in public transportation: Implications for Japan from a European perspective

Abstract

This study examines how public transportation subsidies can be made more efficient and better aligned with policy objectives in Japan by drawing insights from European practices. While Europe and Japan both rely on government-private arrangements to sustain unprofitable services, their institutional histories differ: Europe transitioned from government monopolies to competitive contracting, whereas Japan introduced government support into privately operated services. Focusing on Austria as a representative case of European implementation of Regulation (EC) No 1370/2007, we analyze subsidy and contracting mechanisms using the Strategic–Tactical–Operational (STO) framework. We find that Austria's shift from deficit compensation to competitive public service contracts (PSC) enhanced transparency and cost control. In contrast, Japan's traditional deficit compensation system lacks clear policy objectives, competition, and efficiency safeguards. However, Japan is increasingly adopting PSCs with greater local government involvement, indicating a similar trajectory. The STO framework is used not for strict comparison, but to extract lessons for institutional design, emphasizing that public subsidies must balance social goals and efficiency under fiscal constraints.