Welfare and Environmental Benefits of Electric Vehicle Tax Policies in Developing Countries : Evidence from Colombia
Developing countries face a major challenge of decarbonizing their light-duty vehicle fleet and transitioning to the broad use of electric vehicles. However, there is little evidence on which policies can most effectively facilitate that transition...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099539404062210348/IDU0e8b4724c0dd8c0452c0a7920836a8cdd85e5 http://hdl.handle.net/10986/37286 |
| Summary: | Developing countries face a major
challenge of decarbonizing their light-duty vehicle fleet
and transitioning to the broad use of electric vehicles.
However, there is little evidence on which policies can most
effectively facilitate that transition in these countries,
distinguished by relatively low-income consumers and highly
concentrated markets that distort vehicle markups. This
paper analyzes existing and proposed policies aiming to
reduce emissions from new passenger vehicles in Colombia,
which has used preferential sales taxes and import tariffs
to stimulate hybrid and electric cars sales. Using highly
detailed data on vehicle purchases and attributes, the paper
estimates an equilibrium model of Colombia’s market that
includes a random-coefficients logit demand structure and
endogenizes firms’ markups. Using the model to simulate
policies, the analysis finds that Colombia’s sales tax and
import tariffs have increased hybrid and electric vehicle
market shares by 0.9 to 2.7 percentage points at welfare
costs of $40-$48 per ton of carbon dioxide reduction.
Potentially taxing carbon dioxide emissions rates of new
vehicles would have roughly similar welfare costs. The high
welfare costs of these policies arise from preexisting
distortions caused by market power, which yields large
private welfare costs of shifting from gasoline to hybrid
and electric vehicles. |
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