Winners and Losers: The Distributional Effects of the French Feebate on the Automobile Market

Abstract

I quantify the monetary and environmental gains and losses of an environmental purchase tax/subsidy (feebate) for new cars using a structural model of demand and supply that features a high level of heterogeneity in consumers' preferences. I simulate the market equilibrium without the feebate to quantify its causal effects. The regulation favors middle-income individuals but has redistributive effects when combined with a proportional to income tax. It reduces average carbon emissions at the cost of extra emissions of local air pollutants. The emissions, however, increase the least where they are the highest, implying another type of redistribution.