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Stick or Carrot? Asymmetric Responses to Vehicle Registration Taxes in Norway

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Abstract: Vehicle registrations have been shown to strongly react to tax reforms aimed at reducing CO2 emissions from passengers’ cars, but are the effects equally strong for positive and negative tax changes? The literature on asymmetric reactions to price and tax changes has documented similar results for everyday goods, but has not yet considered durables. We leverage multiple vehicle registration tax (VRT) reforms in Norway to show that, within car model, new car registrations react to tax cuts and fee-bates significantly more than to tax increases. The estimated elasticity is -1.99 for VRT decreases and 0.77 for increases.

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