Canadian Journal of Economics
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New vehicle feebate programs encourage improved fleet‐wide vehicle fuel efficiency; yet analyses of these policies have been limited to ad hoc proposals. In this paper, we exploit an extensive, multi‐year dataset which includes more than 16 million observations to evaluate the welfare implications of a long‐standing vehicle feebate program in the Canadian province of Ontario. We: (1) show that second‐best optimal feebates can be written as a function of new vehicle Pigouvian taxes; (2) find that Ontario's feebate program was welfare‐enhancing relative to a no feebate scenario but that a second‐best optimal benchmark would have yielded additional welfare while reducing fleet‐wide emissions; and (3) find that Ontarian consumers responded asymmetrically to fees versus rebates.