NATIONAL BUREAU OF ECONOMIC RESEARCH
Department of Economics
National Taipei University
151, University Rd.
San Shia District
New Taipei City
NBER Working Papers and Publications
|January 2017||Subsidizing Fuel Efficient Cars: Evidence from China's Automobile Industry|
with Wei-Min Hu, Christopher R. Knittel: w23045
The Chinese automobile market is the largest in the world with annual sales exceeding 20 million vehicles. The tremendous growth in sales---over 200 percent from 2008 to 2015---and concerns over local air quality have prompted China's policy makers to incentivize the adoption of more fuel efficient vehicles. We examine the response of vehicle purchase behavior to China's largest national subsidy program for fuel efficient vehicles during 2010 and 2011. Using variation from the program's eligibility cutoffs, we find that the program boosted sales for subsidized vehicle models, but that the program also created a substitution effect within highly fuel efficient vehicles and most subsidies went to inframarginal consumers. This substitution effect greatly reduces the cost effectiveness of the ...