Tax Preferences for Hybrid Cars

The Incidence of Hybrid Automobile Tax Preferences”, by B. Andrew Chupp of Illinois State University, Normal, Illinois, Katie Myles and E. Frank Stephenson, both of Berry College, Rome, Georgia, was one of the most frequently read articles in Public Finance Review in 2010. B. Andrew Chupp has provided additional background to the article:

Like many of the great articles at PFR, this piece was motivated by a desire to study the effects of public policies.  The hybrid vehicle tax credit was a widely promoted policy to encourage the use of hybrid vehicles, improve overall fuel economy, reduce pollution, and reduce dependence on foreign oil.  However, as with most policies, there can be unintended consequences:  namely, an increase in the price of hybrid vehicles due to increased demand.  It was this effect that we were trying to isolate.

This research is important because it makes people aware of the fact that public policies designed to improve consumer welfare often benefit producers as well.  In that sense, this article’s focus is important for public knowledge as well as for policy-makers, so that they can know what effects this program had in the real world.  An important next step is to focus on how well this policy achieved its goals as listed above.

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