Impact of Tax Cuts on the Purchasing Behavior of Low-Pollution Vehicles, Fuel-Efficient Vehicles

Author Name FUJIWARA Toru  (Meikai University)
Creation Date/NO. January 2011 11-J-008
Research Project Simulation Models for Policy Evaluation
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This paper focuses on anti-warming measures in the passenger vehicle sector and estimates the impacts of three policies in the green car taxation plan on consumer behavior with respect to car purchases. The three policies refer specifically to, first, preferential taxation for green vehicles; second, special treatment of the vehicle acquisition tax when acquiring fuel-efficient vehicles; and third, special treatment of the vehicle acquisition tax when acquiring low-pollution vehicles. Our estimates are based on fiscal 2004 data, following the introduction of these policies.

According to our findings, as far as the effect of the change in pricing structure alone is concerned, the policies contributed slightly to the objective of promoting motor vehicles with less harmful impact on the environment. However, the tax cuts lower the purchase cost and thus create incentives for consumers who otherwise might not purchase these vehicles without such tax cuts. Accordingly, such policies could be contributing to carbon dioxide emissions. Even so, our study has also revealed that the impacts themselves are limited, given that the ratio of tax abatements to total vehicle cost is limited.

As a hypothetical policy, our study simulates a package in which the tax cut rate for hybrid vehicles is expanded considerably and the reduction in vehicle acquisition tax on gasoline-powered vehicles is abolished, to reduce the price disparity between the two types of vehicles. This suggests that to ensure that tax cuts have an effect, it is necessary to, first, make a very substantial tax cut for hybrid vehicles and to, second, terminate tax cuts for gasoline powered vehicles, for the purposes of ensuring that the cuts do not motivate consumers who would otherwise not buy a car to purchase a vehicle and narrowing the price gap between gasoline powered and hybrid vehicles.