Environmental and welfare effects of vehicle purchase tax: Evidence from China

Qing Ji, Chunan Wang and Ying Fan

Energy Economics, 2022, vol. 115, issue C

Abstract: We investigate how an increase in the rate of purchase tax for internal combustion engine vehicles (ICEVs) in China affects sales of ICEVs and battery electric vehicles (BEVs), environmental externalities of CO2 and PM2.5 emissions and social welfare. By building a random-coefficients discrete choice model based on the brand-level sales data and conducting counterfactual analyses, we find that, first, the own-price elasticity of market shares of ICEVs and BEVs are −3.07 and −2.93, respectively. Second, the increase in purchase tax rate by 2.5% for ICEVs with a displacement no higher than 1.6 L in 2017 has reduced the environmental externalities caused by CO2 and PM2.5 emissions. Third, the welfare effect depends crucially on the definition of social welfare and the assumptions about vehicle lifetime and manufacturers' pricing decisions. Finally, several policy implications are discussed.

Keywords: Purchase tax; Internal combustion engine vehicles; Battery electric vehicles; Environment; Social welfare (search for similar items in EconPapers)
JEL-codes: L11 L13 L62 Q42 Q48 Q51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322005060

DOI: 10.1016/j.eneco.2022.106377

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