Abstract: This paper examines the U.S. federal EV subsidy’s income cap, introduced under the 2022 Inflation Reduction Act, and its environmental and redistributive effects. First, using variation in exposure to the income-cap across ZIP-codes, I estimate that a 22-percentage-point drop in subsidy eligibility reduces EV registrations by 21 percent, implying a price elasticity of 2.9 for the marginal group. I develop an optimal-tax framework for income-capped subsidies and derive cap-conditional sufficient statistics for the jointly optimal per-unit subsidy and income cap. The optimal subsidy rate is larger when higher marginal external benefits coincide with greater price responsiveness, and when subsidy take-up is inversely related to income; the cap itself determines which households enter these moments. Calibrating a homothetic CES demand block, I trace an equity–environment frontier: as inequality aversion rises, the optimal cap tightens and the optimal subsidy falls; total environmental benefits decline, yet net fiscal efficiency can increase because inframarginal transfers are concentrated among high-income, high-adoption bins. The framework generalizes to other income-capped clean-energy programs and yields implementable rules for jointly choosing generosity and eligibility.
Abstract: This paper studies optimal sugar taxation when firms can reformulate differentiated products. Existing theories of sin taxation typically treat product characteristics as fixed, yet empirically large reductions in sugar intake occur through manufacturers’ reformulation responses rather than solely through consumer substitution. We therefore develop a theory of optimal sin taxation with market power and endogenous reformulation, showing that reformulation raises the optimal sugar tax when taxes induce low-cost reductions in sugar content, but lowers it when reformulation is costly. We then estimate a structural model of demand and supply for the California non-alcoholic beverage market using retail and household-panel data, calibrate reformulation costs using empirical evidence from the U.K. Soft Drinks Industry Levy, and solve optimal-tax counterfactuals. In an efficiency benchmark, incorporating firms’ reformulation responses into the counterfactual raises the optimal linear sugar tax from 18 to 48 cents on a 12 g/100ml drink, increases welfare gains from $119.7 million to $784.9 million over a 36-month horizon, and lowers average purchased sugar from 6.27 to 1.74 g/100ml. Although we focus on sugar-sweetened beverages, the framework applies more broadly to corrective taxation in differentiated-product markets where firms can adjust the taxed characteristic.
Abstract: This paper examines the intertemporal behavioral response of households to the phase-out of the U.S. federal electric vehicle (EV) tax credit. I exploit the 2019 credit reduction for Tesla and General Motors - triggered when each manufacturer reached the 200,000-EV sales threshold - to study how consumers adjust the timing of EV purchases in anticipation of scheduled incentive changes. Using high-frequency vehicle registration data from New York State between 2014 and 2021 and a two-way fixed effects event-study design, I document large and sharp intertemporal substitution for Tesla. Monthly Tesla sales rose by roughly 3,000 units per model in the two months preceding the credit cut relative to the phase-out month, over twice the model-level average monthly sales prior to the phase-out, indicating substantial purchase acceleration rather than net demand expansion. In contrast, I find limited evidence of retiming for General Motors. The results highlight that not accounting for intertemporal substitution leads to overestimation of the welfare and adoption effects of EV subsidies. I discuss price adjustments and salience as potential mechanisms and outline how these findings inform the design of dynamic clean-energy incentives and the evaluation of the 2022 Inflation Reduction Act’s reforms.