This paper examines the environmental and distributional impacts of China’s 2015 vehicle purchase tax cut for small-engine cars. Using spatial and time-shifted difference-in-differences strategies, we find that the policy significantly increased air pollution, particularly near main roads. While it encouraged the purchase of smaller-engine vehicles, the resulting surge in total car ownership exacerbated traffic congestion and emissions. Transaction-level housing data shows that property prices declined most in residential complexes near main roads, especially in lower-priced neighborhoods. These findings underscore the unintended environmental and distributional consequences of durable-goods stimulus policies, highlighting the need to align fiscal policy with sustainability and equity.
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