| Summary: | 碩士 === 國立臺灣大學 === 經濟學研究所 === 107 === Taiwan officially joined the World Trade Organization (WTO) in 2002, and the tariff on imported vehicles dropped from 30% to 17.5%, which has increased the competitiveness of imported vehicles in the automobile market in Taiwan. It also caused intense competition between domestic and imported vehicles, which is a big problem for domestic manufacturers. This paper first follows the Berry, Levinsohn and Pakes (1995) Random Coefficient Discrete Choice Model to estimate the demand side and the cost side of the automobile market in Taiwan. Then I use the counterfactual analysis to understand how much subsidy in the commodity tax rate for domestic vehicles can offset the damage from the reduction in the import tax rate. Furthermore, I also compare the changes in welfare. The demand estimation shows that the average own price elasticity of imported vehicles is greater than that of domestic vehicles. In addition, the competition and substitution is mainly between the domestic highlevel and imported lowlevel vehicles. Also, the cost side estimation shows that after the deduction of the tax and conditional on the same price level of domestic and imported vehicles, the average marginal cost of the domestic vehicles is higher than that of imported vehicles. Finally, the counterfactual simulation shows that facing the reduction of 1%, 3%, and 5% in the import tax rate, the government should give the domestic vehicles a commodity tax rate reduction of 0.75%, 2.3%, and 3.925% respectively, to offset the damage. Also, the consumer surplus will be increased by 20.14%, 61.89%, and 105.82% respectively, and the social welfare will be increased by 2.6%, 7.8%, and 13% respectively.
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