Economics Seminar（2016-13）

Topic: Market equilibrium and welfare effects of a fuel tax in China: the impact of consumers’ response in driving patterns

Speaker: Junji Xiao, Chinese University of Hong Kong

Time: Tuesday, Sept. 27, 14:00-15:30

Place:Room 217, Guanghua Building 2

Abstract:

In recent years, the rapid development of the Chinese automobile market has caused severe problems, such as air pollution and traffic congestion. The Chinese government is seeking effective policies to resolve these problems. This paper explores the effectiveness and efficiency of a fuel tax while factoring in consumers’ response to this tax in their vehicle driving patterns. Our empirical findings show that the fuel price elasticity of vehicle miles traveled is -0.82 in China. Given consumers’ response in driving patterns, a 70% increase in current tax-inclusive gasoline prices will lead to an 8.02% decrease in the number of vehicles, compared to a 32.63% decrease if assuming driving patterns are unchanged. In terms of welfare analysis, the efficiency of the fuel tax depends on our assumption of the lifetime of the vehicle and consumers’ response in driving patterns. This finding suggests that previous research that did not consider changes in driving patterns may have exaggerated the disutility caused by the fuel tax. We also compare the fuel tax to a policy currently in effect, the vehicle quota system, which essentially implements vehicle control by increasing ownership costs. We find that the fuel tax is less effective in vehicle control but more efficient in reducing welfare loss.

Introduction:

Junji Xiao is an Associate Professor at the Dept of Management Sciences & Managerial Economics, Faculty of Business Administration, the Chinese University of Hong Kong. Prof. Xiao received his Ph.D. from University of Toronto. He is an economist with research interest in the fields of empirical industrial organization, environmental economics and China economy. His recent work has focused on the Chinese automobile industry and explored such topics as the competition structure, the welfare effect of environmental policies and the vertical restraints of this industry. Before joining CUHK Business School, Prof. Xiao taught at Fudan University and Shanghai University of Finance and Economics, respectively. He was awarded the German DFG Fellowship in 2001, Nature Science Foundation of China grant in 2010 and General Research Fund from Hong Kong Research Grant Council in 2016. His research work has been published in such leading academic journals asReview of Economics and Statistics, Journal of Economics & Management Strategy, Journal of Industrial Economics, as well as others.

//www.bschool.cuhk.edu.hk/index.php/schools-departments/decision-sciences-mangerial-economics/faculty/full-time-faculty?pid=692&sid=772:Xiao-Junji

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