Subsidizing Fuel-Efficient Cars: Evidence from China's Automobile Industry

Chia-Wen Chen, Wei-Min Hu and Christopher R. Knittel

American Economic Journal: Economic Policy, 2021, vol. 13, issue 4, 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.

JEL-codes: D12 H25 L25 L62 O14 P23 P36 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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DOI: 10.1257/pol.20170098

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