Taxing Electric Vehicles: Market Reaction and Policy Lessons from Denmark

Abstract

This thesis studies the market reaction to the initial phase-in of electric vehicle taxation in Denmark. A unique dataset is constructed from used Tesla announcements to analyse whether the pre-announced tax change created an opportunity for speculators to buy before and sell after the registration tax is levied. We find that controlling for the available car characteristics, prices show a statistically significant negative trend on the used-car market. The number of used Tesla announcements increased by 25%, while new registrations of Tesla vehicles spiked the month before and dropped immediately after the new tax was enacted. Our results imply that upon being informed about the new legislation, the market internalized the tax increase. The results have two implications. Firstly, the data suggests that speculators did not profit on average from this artificial price increase, as it was the used-car buyers who managed to capture the implicit value difference with their purchases after the 1st of January. Secondly, the steep drop in new Tesla registrations resulted in a foregone tax revenue for the Danish government. The estimated foregone tax revenue in 2016 from the shift in Tesla Model S purchases ranges between 180 and 474 million DKK. There is a trade-off between legislative stability and fiscal effectiveness of the policy tool. This finding has policy implications for governments who intend to end the favourable tax treatment of electric vehicles in the future.