Subsidizing Fuel-Efficient Cars: Evidence from China's Automobile Industry
- (pp. 152-84)
Abstract
This paper examines the response of vehicle purchase behavior to China's largest national subsidy program for fuel-efficient vehicles during 2010 and 2011. Using variation from the program's eligibility cutoffs and the rollout of the subsidy program, the program is found to boost sales for subsidized vehicle models, but also to create a substitution effect within highly fuel-efficient vehicles. Estimates imply that ignoring the substitution effect would lead one to conclude that the program is welfare enhancing, whereas in fact the marginal cost of the program exceeds the marginal benefit by as much as 300 percent.Citation
Chen, Chia-Wen, Wei-Min Hu, and Christopher R. Knittel. 2021. "Subsidizing Fuel-Efficient Cars: Evidence from China's Automobile Industry." American Economic Journal: Economic Policy, 13 (4): 152-84. DOI: 10.1257/pol.20170098Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L25 Firm Performance: Size, Diversification, and Scope
- L62 Automobiles; Other Transportation Equipment; Related Parts and Equipment
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- P23 Socialist Systems and Transitional Economies: Factor and Product Markets; Industry Studies; Population
- P36 Socialist Institutions and Their Transitions: Consumer Economics; Health; Education and Training: Welfare, Income, Wealth, and Poverty
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