Friday, August 05, 2011

Markets in Everything: Cutting Cars in Half

"People who import cars to Ukraine sometimes [pay to have] the car cut in two separate pieces and carry it through customs this way (see photo). By doing this, they save a fortune on import tax. A car carried in two pieces is seen as spare parts and therefore is taxed at a much lower rate than a normal car.  When in Ukraine, the [owner pays to have the] car welded back into one piece." 

MP: The economic lessons here are: a) people respond to incentives, b) if you tax something, you get less of it, and c) taxes (and regulations) are distortionary because people change their behavior to find ways around them.  

HT: Tyler Cowen via Pete Friedlander

13 Comments:

At 8/05/2011 7:49 AM, Blogger morganovich said...

i think the final lesson may be d) don't buy a car from the ukraine.

 
At 8/05/2011 8:30 AM, Blogger Larry G said...

in the world of taxing and regulation... the evaders of often one or two steps ahead of the laws.

taxing AND subsidizing DO AFFECT the market and there are indeed dumb laws and regs ... laws & regs ..written with loopholes.. accidental and on purpose....

cut cutting a car in half sounds pretty extreme.

sort of like that Johnny Cash song... "One piece at a time"...

and it "did not cost me a thing"

and.. " it took 60 pages to register it".

:-)

 
At 8/05/2011 9:12 AM, Blogger Eric H said...

The link in the comments to the Volvo overseas delivery program is pretty interesting - shipping your 'used' car home.

 
At 8/05/2011 10:08 AM, Blogger morganovich said...

they do something similar to this in denmark.

new cars face somehting like a 110% tax there, but "trucks" are exempted, so people take the back seats out of cars and that makes them "trucks".

i may have the particulars a bit wrong, but that's the general gist.

 
At 8/05/2011 10:24 AM, Blogger Buddy R Pacifico said...

It is interesting to look at vehicle and parts restrictions around the world.

Many countries simply do not allow imports of used autos. Australia is more gracious with the used mnarket by charging a flat $12,000 fee on pre-owned.

India would seem to be ripe for the "seam" solution for auto imports. Autos are charged a 100% duty, along with a countervailing duty of 24%, and a 3% education tax on the whole total.

Singapore is absolutely a poor "seamed" market because it has no tariffs on vehicles or components.

 
At 8/05/2011 4:54 PM, Blogger Marko said...

You might be a liberal if . . . you read this article and the first thing you think is "boy, they really need to raise taxes on car parts!"

 
At 8/05/2011 10:31 PM, Blogger Hydra said...

I know a business that exports wrecked chairs to El Salvador, where they are rebuilt. And for the same reason.

Are El Salvador and Ukraine protecting their well known auto manufacturors?

 
At 8/06/2011 2:12 AM, Blogger Ron H. said...

"You might be a liberal if . . . you read this article and the first thing you think is "boy, they really need to raise taxes on car parts!"

*like*

 
At 8/06/2011 2:15 AM, Blogger Ron H. said...

I can only conclude that the import tax must be a real killer. Cutting a car in half and reassembling it isn't an inexpensive project.

 
At 8/06/2011 2:49 AM, Blogger Ron H. said...

Although this story may be correct, some of the pictures show what appear to be front and rear clips in salvage yards. Among other things, the fact that the carpets appear to be cut through, indicates that these pieces aren't intended to be reassembled again as the same car.

 
At 8/06/2011 2:54 AM, Blogger Ron H. said...

"i think the final lesson may be d) don't buy a car from the ukraine."

Wow. after reading this article, I was luckily able to cancel my order just before it was final. :-)

Actually when done correctly, a cut and reassembled car can be stronger that it was before cutting.

 
At 8/06/2011 3:09 AM, Blogger Purpendicular said...

This was popular in Norway during the 80s. Buy Porsche in Germany, cut in two, import as scrap, weld together in Norway, register as a car. According to Swedish television, the saving was about 50%.

 
At 8/06/2011 1:27 PM, Blogger Ron H. said...

"I know a business that exports wrecked chairs to El Salvador, where they are rebuilt. And for the same reason."

Wrecked chairs...??

 

Post a Comment

Links to this post:

Create a Link

<< Home