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Environmental and welfare effects of vehicle purchase tax: Evidence from China

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  • Ji, Qing
  • Wang, Chunan
  • Fan, Ying

Abstract

We investigate how an increase in the rate of purchase tax for internal combustion engine vehicles (ICEVs) in China affects sales of ICEVs and battery electric vehicles (BEVs), environmental externalities of CO2 and PM2.5 emissions and social welfare. By building a random-coefficients discrete choice model based on the brand-level sales data and conducting counterfactual analyses, we find that, first, the own-price elasticity of market shares of ICEVs and BEVs are −3.07 and −2.93, respectively. Second, the increase in purchase tax rate by 2.5% for ICEVs with a displacement no higher than 1.6 L in 2017 has reduced the environmental externalities caused by CO2 and PM2.5 emissions. Third, the welfare effect depends crucially on the definition of social welfare and the assumptions about vehicle lifetime and manufacturers' pricing decisions. Finally, several policy implications are discussed.

Suggested Citation

  • Ji, Qing & Wang, Chunan & Fan, Ying, 2022. "Environmental and welfare effects of vehicle purchase tax: Evidence from China," Energy Economics, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322005060
    DOI: 10.1016/j.eneco.2022.106377
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    More about this item

    Keywords

    Purchase tax; Internal combustion engine vehicles; Battery electric vehicles; Environment; Social welfare;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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