The Surprising Incidence of Tax Credits for the Toyota Prius

James Sallee

American Economic Journal: Economic Policy, 2011, vol. 3, issue 2, 189-219

Abstract: This paper estimates the incidence of tax incentives for the Toyota Prius. Transaction microdata indicate that both federal and state incentives were fully captured by consumers. This is surprising because Toyota faced a binding production constraint, which suggests that they could have appropriated the gains. The paper proffers an explanation based on an intertemporal link in pricing that stems from search frictions, which has the unconventional implication that statutory burden influenced economic burden. The paper develops a bounding estimator to account for endogenous selection into preferential tax regimes that may be useful in other contexts. (JEL H22, H24, L11, L62)

JEL-codes: H22 H24 L11 L62 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/pol.3.2.189
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Citations: View citations in EconPapers (75)

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