Graduation Year

2022

Date of Submission

12-2022

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Michael Gelman

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Abstract

The Inflation Reduction Act of 2022 revamped the electric vehicle tax credit system in the United States. It imposed new restrictions on automaker’s supply chains in order to qualify for the full or partial tax credit. The law also set price limits for vehicles that wish to qualify. Because of the differentiated nature of each automotive supply chain, certain automakers are better positioned to qualify than others. This paper hypothesizes that automakers more likely qualify for the tax credit experienced better stock market returns following the legislation’s announcement than automakers less likely to qualify for the tax credit. The variation in an automaker’s qualification likelihood allows a difference-in-difference approach to determine whether there were equity value implications specific to when the legislative agreement was first announced.

Using a before and after linear regression model as well as a daily linear regression model, this paper estimates whether there are statistically different stock returns between the group of automakers more likely to qualify and the group of automakers less likely to qualify. Both models reject this paper’s hypothesis as there is no statistically significant difference in stock returns between the automakers more likely to qualify and the automakers less likely to qualify. While there are limitations to this study, this paper analyzes an important economic event and provides direction for further research.

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