Market equilibrium and welfare effects of a fuel tax in China: The impact of consumers' response through driving patterns |
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| Institution: | 1. The Research Institute of Economics and Management, Southwestern University of Finance and Economics, China;2. Economics Discipline Group University of Technology Sydney, Australia;3. Faculty of Economics and Management East China Normal University, China;1. School of Business and Economics, Humboldt University, SpandauerStr. 1, 10178 Berlin, Germany;2. School of Public Economics and Administration, Shanghai University of Finance and Economics, 777 Guoding Road, 200433 Shanghai, China;1. Christian-Albrechts-University of Kiel, Germany;2. DIW/SOEP and Freie Universitaet Berlin, Germany;1. Colorado School of Mines, 1500 Illinois St, Golden CO, 80401, United States;2. University of California, San Diego and NBER, 9500 Gilman Dr, La Jolla CA, 92093-0519, USA;1. Department of Economics, University of Copenhagen, Denmark;2. Department of Food and Resource Economics, University of Copenhagen, Denmark;3. Department of Economics, National University Singapore, Singapore;1. Department of Real Estate, National University of Singapore, Singapore;2. Hang Lung Center for Real Estate and Department of Construction Management, Tsinghua University, China;3. School of Social Sciences, Nanyang Technological University, Singapore |
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| Abstract: | We investigate the market equilibrium and welfare effects of a fuel tax in China relative to an alternative policy instrument that rations the number of new automobile sales through auctioned quotas. Unlike those of previous studies, our modeling approach incorporates both household car purchase and utilization decisions, the latter of which have been ignored in previous studies on China's fuel tax. Ignoring this margin of choice will underestimate the fuel tax's ability to mitigate externalities. Using detailed household-level panel data and a fixed effects econometric specification, we estimate the fuel price elasticity of vehicle miles traveled is ?0.59 on average. The results of the counterfactual analysis suggest that a 51% increase in tax-inclusive gasoline prices will reduce car sales by 24.9% but increase social welfare to a degree that depends on vehicles' lifetime. We find that compared to auctioned quotas, the fuel tax results in greater car sales but higher social welfare. |
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| Keywords: | Fuel tax China automobile market Welfare analysis Q51 Q58 H23 |
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