Green Drivers or Free Riders? An Analysis of Tax Rebates for Hybrid Vehicles

Abstract:     
We estimate the effect of tax rebates on sales of Hybrid Electric Vehicles, offered by Canadian provinces. We find that these rebates had a large and significant effect on raising the market share of hybrid vehicles and that Intermediate cars, Intermediate SUVs and some high performance compact cars were crowded out as a result. Nevertheless, we find that these programs have a very high cost relative to other methods of reducing carbon emissions. The rebate programs largely subsidized consumers who would have bought hybrid vehicles or other fuel-efficient vehicles in any case. If carbon reduction is the goal, provincial governments may be better off purchasing carbon credits rather than providing tax incentives for hybrid cars.

Keywords: Tax Rebates, Hybrid Vehicles, Program Evaluation

JEL Classifications: Q52, Q54, Q58

Working Paper Series