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*Ling Hui Tan is a Senior Economist in the European Division of the IMF Institute. She is grateful to

By Ling Hui Tan

Abstract

Since 1990, Singapore has sought to control motor vehicle ownership by means of an auction quota system, whereby prospective vehicle buyers need to obtain a quota license before they can make their purchase. This paper assesses the success of the vehicle quota system in meeting its objectives of stability in motor vehicle growth, flexibility in the motor vehicle mix, and equity among motor vehicle buyers. Two important implementation issues—quota subcategorization and license transferability—are highlighted, and policy lessons are drawn for the design of auction quotas in general. [JEL D44, D45, R48] Since 1990, Singapore has sought to control the rate of growth of its motor vehicle population by means of a unique auction quota system. Under the vehicle quota system (VQS), the government fixes the number of new motor vehicles allowed on the road each year, then allocates approximately one-twelfth of this annual quota to the public each month by means of a sealed bid uniform price auction. Prospective motor vehicle buyers first have to obtain a quota license (called a certificate of entitlement) before they are allowed to make their purchase. There is a long-standing literature on optimal government intervention to achieve noneconomic objectives. This literature concludes that in the presence of the constraint that domestic consumption of a good not exceed a certain level, the social utility maximizing policy is a consumption tax on the good. 1 Assuming that the objective is to limit motor vehicle ownership and assuming that there is perfect competition in the motor vehicle market, an auction quota would be equivalent to an import tariff, which, in turn—given that Singapore has no domestic automobil

Year: 2011
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