Fuel Prices, Federal Tax Credits, and the Welfare: A Case of the U.S. Electric Automobile Industry


This paper represents an analysis of the drivers for the demand for electric vehicles, with a focus on the price of gasoline and incentivization via income tax. It is demonstrated that if gasoline prices had remained at the same level as 2010, 2017 electric vehicle sales would have been 22%-39% lower; the influence of the federal income tax credit program on the sales of electric vehicles in 2017 is estimated at 8%. With the federal credit incentive program, the cost of effecting a reduction in the consumption of gasoline was $73 in government revenue per barrel; reducing CO2 emissions costs by $137 per ton. The changes to government revenue, company surpluses, consumer surpluses, and external costs have been quantified based on the introduced federal income tax incentives. The findings demonstrate that $49 million (net) of social welfare losses would result from the incentive program although other positive influences resulting from the incentives would more than makeup for these.