Welfare Analysis of Government Subsidy Programs for Fuel-Efficient Vehicles and New Energy Vehicles in China

Ziying Yang and Manping Tang ()
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Ziying Yang: Southwestern University of Finance and Economics
Manping Tang: Sichuan Agricultural University

Environmental & Resource Economics, 2019, vol. 74, issue 2, No 17, 937 pages

Abstract: Abstract To address energy security and environmental problems, the Chinese government has issued various subsidy programs for fuel-efficient vehicles and new energy vehicles (NEVs). This paper investigates the effectiveness and welfare consequences of (1) the vehicle and vessel usage tax incentive (VVUT-incentive), (2) the fuel-efficient vehicle subsidy program (FEV-subsidy program), and (3) the NEV private purchase subsidy pilot program (NEV-subsidy program). From car registration data for Shanghai, Changchun, Hangzhou, Hefei, and Shenzhen from 2011 to 2012, we estimate a random coefficient discrete choice model and conduct a counterfactual analysis based on the estimated parameters. The empirical findings suggest that these policies promote the diffusion of fuel-efficient vehicles and NEVs and improve fleet fuel efficiency. However, the VVUT-incentive and FEV-subsidy program increase oil consumption and CO2 emissions. Although the NEV-subsidy program decreases gas consumption, it increases CO2 emissions. We also show that the VVUT-incentive and FEV-subsidy program improve welfare conditions. However, the NEV-subsidy program compromises social welfare, as losses of government revenue exceed consumer surplus gains.

Keywords: Environmental effects; Fuel-efficient vehicles; Government subsidies; New energy vehicles; Welfare consequences (search for similar items in EconPapers)
JEL-codes: L5 L91 Q4 Q5 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s10640-019-00353-8

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