Foundation and the National Institute for Child Health and Development.

Federal and state governments in the United States have responded to rising con-cerns about the consequences of petroleum consumption in part by introduc-ing tax subsidies for new vehicles that feature fuel-ef!cient technologies, including gas-electric hybrids. These policies aim to reduce oil consumption in the personal transportation sector, which accounts for 40 percent of gasoline consumption and 20 percent of greenhouse gas emissions (U.S. Environmental Protection Agency 2007). At the federal level, the Energy Policy Act of 2005 introduced a substantial personal income tax credit for hybrids. At the state level, thirteen states have passed tax incentives for hybrids, and many others have considered similar actions. In this paper, I determine who bene!ts from tax incentives for hybrids using transaction level microdata to estimate the incidence of existing subsidies for the Toyota Prius. I!nd that consumers capture nearly all of the bene!ts of tax subsidies. Transaction prices for the Prius did not change following changes of up to $2,650 in subsidy value. Since consumers receive the subsidy directly from the government after their purchase, constant transaction prices imply that consumers captured the bene!ts of government intervention. This!nding has implications for the evaluation of existing and future policies. It also has broader implications for the study of tax incidenc