Effects of environment-related stimulus policies: An event study approach

Abstract

As part of the environment-related stimulus package implemented in the aftermath of the 2008 global financial crisis, the Japanese government introduced tonnage and acquisition tax breaks as well as a subsidy programme for eco-friendly vehicles. However, there has been limited research on their economic effects. This paper employs the event study methodology to examine not only the direct economic effects of the eco-friendly vehicle tax breaks and subsidy programme but also their spillover economic effects. In particular, we consider the economic effects on firms using the event study methodology to analyse how the stock prices of automobile firms responded to the programmes and to assess the spillover effects on the automobile parts firms. Our results show that the eco-friendly vehicle tax breaks had lower positive economic direct effects and no positive spillover effects while the eco-friendly vehicle subsidy programme had more significant positive direct economic effects and positive spillover effects. The differences in economic effects between tax breaks and a subsidy programme result from the differences in the implementation duration and in the preferential monetary benefits. In addition, the spillover effects between tax breaks and a subsidy programme may differ according to the time of announcements and the investments in the production of eco-friendly vehicle parts.