 Tax incidence with endogenous quality and costly bargaining: Theory and evidence from hybrid vehicle subsidiesSumeet Gulati, Carol McAusland () and James Sallee Journal of Public Economics, 2017, vol. 155, issue C, 93-107 Abstract: Endogenous quality and bargaining are important features of many markets but are typically omitted from studies of incidence. We develop a model with product upgrades and costly bargaining and find that tax rate pass-through only partially characterizes the welfare impact of taxation; consumers may respond to a tax or subsidy by changing product quality or by changing their bargaining effort. We apply the insights of our theory to the study of subsidies for green goods, specifically hybrid electric vehicles in Canada. We utilize highly detailed transaction data and leverage panel variation in subsidies across provinces for identification. Our baseline estimate finds that prices rises by $570 for every $1000 increase in the subsidy. But, this pass-through estimate substantially underestimates consumer gains because a majority of this price increase ($459–≈ 80%) is due to increased product quality in the form of additional options and features. Keywords: Incidence; Bargaining; Green subsidies; Energy efficient technologies; Hybrid electric vehicles; Automobiles (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:155:y:2017:i:c:p:93-107 DOI: 10.1016/j.jpubeco.2017.09.003 Access Statistics for this article Journal of Public Economics is currently edited by R. Boadway and J. Poterba More articles in Journal of Public Economics from Elsevier |
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