No. 118: Towards green driving – Income tax incentives for plug-in hybrids

Year: 2023
Type: Working Paper


Fostering green driving has the potential to reduce the high CO2 emissions in the transportation sector. We investigate a German policy reform in 2019 that provided preferential tax treatment for hybrid company cars and evaluate the effectiveness and efficiency of the reform. Using a difference-in-differences design, we find that the tax benefit increased the number of newly registered eligible hybrid cars, compared to noneligible cars in Germany and pseudo-eligible hybrids in Austria. We find additional evidence for the effectiveness of the reform by comparing the German and the Austrian car markets in a triple-difference-in-differences setting. While the reform did help foster green driving, it was rather cost-inefficient, compared to other policy measures aiming to reduce CO2 emissions. Conducting a cost benefit analysis, we find that the cost per saved ton of CO2 was 682€.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne and Leibniz University Hannover who share the same research agenda.

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