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The Effects of "Buy American": Electric Vehicles and the Inflation Reduction Act

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  • Allcott, Hunt
  • Kane, Reigner
  • Maydanchik, Maximilian S
  • Shapiro, Joseph S
  • Tintelnot, Felix

Abstract

We provide the first ex post microeconomic welfare analysis of the electric vehicle (EV) tax credits in the Inflation Reduction Act (IRA). Relative to pre-IRA policy, the credits generated $1.96 in domestic benefits per dollar of government spending, with taxpayer cost of $36,500 per additional EV. Relative to having no EV credits, they yielded $1.11 in domestic benefits per dollar of government spending. A leasing loophole that sidestepped domestic content rules created negative domestic benefits. A prominent example of green industrial policy, the credits harmed foreign countries by shifting surplus to domestic producers and helped them by decreasing CO2 emissions.

Suggested Citation

  • Allcott, Hunt & Kane, Reigner & Maydanchik, Maximilian S & Shapiro, Joseph S & Tintelnot, Felix, 2026. "The Effects of "Buy American": Electric Vehicles and the Inflation Reduction Act," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6sw1w4x0, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt6sw1w4x0
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    Cited by:

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    2. Eugenie Dugoua & Joelle Noailly, 2026. "Diffusion of Clean Technologies: Patterns, Mechanisms, and Future Challenges," WIPO Economic Research Working Papers 95, World Intellectual Property Organization - Economics and Statistics Division.
    3. Robert J. R. Eliott & Gavin D. J. Harper & Viet Nguyen-Tien, 2026. "The economics of the electric vehicle transition: demand, supply chains, and innovation," CEP Discussion Papers dp2164, Centre for Economic Performance, LSE.
    4. Hoogland, Kelly & Hardman, Scott & Chakraborty, Debapriya & Bunch, David S., 2025. "The US federal tax incentive encourages buyers to lease and purchase electric vehicles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 199(C).

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    Keywords

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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