Tax incentives for new energy vehicles challenge road infrastructure break-even

Yiya Lu, Tianduo Peng, Lining Wang, Xunmin Ou, Xunzhang Pan, Ying Zheng and Zhan-Ming Chen

Energy Economics, 2025, vol. 146, issue C

Abstract: Tax incentives for new energy vehicles (NEVs) have broader implications beyond their intended goals, raising concerns about the efficiency and affordability of these incentives. This study develops an integrated framework to compare the economic-wide implications of NEV incentives in China under eight scenarios considering different tax and non-tax incentives. Results suggest that lasting tax exemption promotes NEV replacement at a very high cost. For example, compared with the default policy to phase out the vehicle purchase tax exemption gradually, extending the tax exemption until 2035 will increase the NEV sales by 7 million at the costs of reducing related tax revenues by 3614 billion RMB, employment by 5108 thousand person-years, and GDP by 2091 billion RMB. On the contrary, phasing out the tax exemption as soon as possible will benefit road infrastructure financing (by increasing purchase tax and fuel excise tax revenues), job creation, and GDP growth without significantly harming NEV penetration. Policymakers should attach importance to the unintended impacts of NEV tax incentives, such that to achieve NEV promotion with affordable costs.

Keywords: New energy vehicle; Vehicle purchase tax; Fuel excise tax; Road infrastructure financing; Cost-effectiveness (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:146:y:2025:i:c:s0140988325003457

DOI: 10.1016/j.eneco.2025.108521

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