Advanced Search
MyIDEAS: Login to save this article or follow this journal

Do sales tax credits stimulate the automobile market?

Contents:

Author Info

  • Chen, Jiawei
  • Esteban, Susanna
  • Shum, Matthew

Abstract

In this paper, we quantitatively investigate the effectiveness of a sales tax reduction in stimulating sales and profits of durable goods manufacturers. Our question is motivated by policy makers' recent interest in helping ailing automobile manufacturers and in replacing a fleet of highly polluting vehicles. President Obama's economic stimulus plan, for instance, has directly targeted the primary market by including a sales tax credit on purchases of new cars and trucks. In this paper, we show that the benefit of reducing the sales tax, measured by its effect on firms' profits and sales, greatly decreases with the product's durability. The magnitude of our findings indicates that one must carefully account for durability and firms' behavior when evaluating such policies. Our findings are robust when we vary key parameters of the market.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V8P-4YH566W-1/2/62a50d03269faa00ee4c0b86a0d47267
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 4 (July)
Pages: 397-402

as in new window
Handle: RePEc:eee:indorg:v:28:y:2010:i:4:p:397-402

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Sales tax Durable goods Oligopoly Time consistency Secondary markets Automobile industry;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Esteban Susanna, 2007. "Effective Scrappage Subsidies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-32, February.
  2. Robert H. Porter & Peter Sattler, 1999. "Patterns of Trade in the Market for Used Durables: Theory and Evidence," NBER Working Papers 7149, National Bureau of Economic Research, Inc.
  3. Pasquale Schiraldi, 2008. "Automobile replacement: a dynamic structural approach," LSE Research Online Documents on Economics 21780, London School of Economics and Political Science, LSE Library.
  4. Jerome Adda & Russell Cooper, 2000. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 778-806, August.
  5. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  6. Adam Copeland & Wendy Dunn & George Hall, 2005. "Prices, production, and inventories over the automotive model year," Finance and Economics Discussion Series 2005-25, Board of Governors of the Federal Reserve System (U.S.).
  7. Smith Loren K., 2009. "New Market Policy Effects on Used Markets: Theory and Evidence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-27, July.
  8. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
  9. Fullerton Don & West Sarah E, 2010. "Tax and Subsidy Combinations for the Control of Car Pollution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-33, February.
  10. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, 06.
  11. Anna Alberini & Winston Harrington & Virginia McConnell, 1995. "Determinants of Participation in Accelerated Vehicle-Retirement Programs," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 93-112, Spring.
  12. Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2008. "Demand and supply estimation biases due to omission of durability," Journal of Econometrics, Elsevier, vol. 147(2), pages 247-257, December.
  13. Goering, Gregory E & Boyce, John R, 1996. "Taxation and Market Power When Products Are Durable," Journal of Regulatory Economics, Springer, vol. 9(1), pages 83-94, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Naoki Wakamori, 2011. "Portfolio Considerations in Differentiated Product Purchases: An Application to the Japanese Automobile Market," Working Papers 11-27, Bank of Canada.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:28:y:2010:i:4:p:397-402. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.