Essays on the effectiveness and implications of governments' green product incentives

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He, Cheng
Ozturk, O. Cem
Hu, Yu Jeffrey
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In my dissertation, I empirically study the impact of two of the most common types of state-level government incentives, i.e., HOV-lane exemption and tax credit, in the U.S. automobile industry. Assessing the impact of monetary and non-monetary green-product incentives is challenging given the endogenous nature of governments' incentive provisions. To identify the effect of government incentives on unit sales of green and non-green vehicles, both essays take advantage of policy changes in various U.S. states. From a methodological standpoint, I employ a a multitude of quasi-experimental methods, including difference-in-differences with Coarsened Exact Matching, regression discontinuity in time, and border strategy. The first essay explores the impact of HOV incentive launch and termination in California and Utah on the unit sales of green and non-green vehicles. Unlike previous studies that only examine the launch of the HOV incentive and find an insignificant impact on green vehicle sales, this essay concentrates on its termination. The findings suggest that the termination of the HOV incentive decreases unit sales of green vehicles covered by the incentive by 14.4%. I also provide suggestive evidence that this significant negative effect of HOV incentive termination is through a mechanism related to the primary benefit the incentive provides: time saving. More precisely, the results indicate that the negative effect is more pronounced in counties where consumers value time saving more (i.e., counties with higher income and longer commute to work). In addition, the termination shifts consumers to non-green vehicles with higher performance. Importantly, in line with prior literature, the launch of the HOV incentive is not found to have a significant effect on green vehicle sales. This means that 1) the effect of termination is not simply the opposite of that of launch and 2) the net effect of the HOV incentive is negative. Combined together, the findings imply that governments' green product incentives could backfire. The second essay examines the impact of tax-credit incentive launch in South Carolina on the unit sales of green vehicles and non-green vehicles. Using quasi-experimental methods, I find that the introduction of the tax-credit incentive leads to a 25.1% increase in the unit sales of green vehicles, while the unit sales of non-green vehicles remain unchanged. I also provide suggestive evidence that the tax-credit incentive is effective through the cost-saving mechanism. Specifically, the tax-credit incentive is more effective in counties where consumers value cost saving more (i.e., counties with lower income). Additionally, the incentive induces substitution from non-green vehicles with high fuel efficiency. The results also indicate that the tax-credit incentive does not result in market expansion for green vehicles. Therefore, the increased demand for green vehicles covered by the tax-credit incentive mainly comes from demand substitution from gasoline vehicles with high fuel efficiency.
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