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The Surprising Incidence of Tax Credits for the Toyota Prius

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  • James M. Sallee

Abstract

This paper estimates the incidence of tax incentives for the Toyota Prius. Transaction microdata indicate that both federal and state incentives were fully captured by consumers. This is surprising because Toyota faced a binding production constraint, which suggests that they could have appropriated the gains. The paper proffers an explanation based on an intertemporal link in pricing that stems from search frictions, which has the unconventional implication that statutory burden influenced economic burden. The paper develops a bounding estimator to account for endogenous selection into preferential tax regimes that may be useful in other contexts. (JEL H22, H24, L11, L62)

Suggested Citation

  • James M. Sallee, 2011. "The Surprising Incidence of Tax Credits for the Toyota Prius," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 189-219, May.
    • Handle: RePEc:aea:aejpol:v:3:y:2011:i:2:p:189-219
    Note: DOI: 10.1257/pol.3.2.189
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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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    1. The Surprising Incidence of Tax Credits for the Toyota Prius (American Economic Journal: Economic Policy 2011) in ReplicationWiki

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