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Consumption Responses and Redistributive Implications of Luxury Durable Tax Rebates

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  • Tanisa Tawichsri

Abstract

This paper evaluates the impact of tax rebates on luxury durables, using Thailand's 2011 car tax rebate as a case study. Utilizing a stochastic dynamic model with heterogeneous agents, where cars serve as both luxury goods and illiquid assets, the study finds that the policy effectively boosted consumption by targeting households with a high propensity to spend. However, it was regressive, primarily benefiting high-income households and leading to prolonged negative effects on household spending and saving. Additionally, the policy caused second-hand car prices to drop. This enabled lower-income households to purchase used cars at lower costs, but further prolonged and deepened cuts in non-durable spending and savings. The estimated Elasticity of Intertemporal Substitution (EIS) for Thailand is 0.2, with higher EIS observed among wealthier and older households.

Suggested Citation

  • Tanisa Tawichsri, 2018. "Consumption Responses and Redistributive Implications of Luxury Durable Tax Rebates," PIER Discussion Papers 99, Puey Ungphakorn Institute for Economic Research, revised Sep 2024.
    • Handle: RePEc:pui:dpaper:99
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    References listed on IDEAS

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    More about this item

    Keywords

    Durable goods; Luxury goods; Elasticity of intertemporal substitution; Buffer-stock models; Illiquid assets;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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