Subsidizing Low- and Middle-Income Adoption of Electric Vehicles: Quasi-Experimental Evidence from California

Erich Muehlegger, David S. Rapson

NBER Working Paper No. 25359
Issued in December 2018, Revised in January 2021
NBER Program(s):Environment and Energy Economics, Public Economics

Little is known about electric vehicle (EV) demand by low- and middle-income households. In this paper, we exploit a policy that provides exogenous variation in large EV subsidies targeted at the mass market in California. Using transaction-level data, we estimate three important policy parameters: the rate of subsidy pass-through, the impact of the subsidy on EV adoption, and the elasticity of demand for EVs among low- and middle-income households. Demand for EVs in our sample is price-elastic (-3.3) and pass-through to buyers is indistinguishable from 100 percent. We use these estimates to calculate that the expected subsidy bill required for California to reach its goal of 1.5 million EVs by 2025 is likely to exceed $12-18 billion.

Supplementary materials for this paper:

• data appendix

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25359