Accelerator or Brake? Microeconomic estimates of the ‘Cash for Clunkers’ and Aggregate Demand*

Daniel Green, Brian T Melzer, Jonathan A. Parker, Ryan Pfirrmann-Powell

Research output: Working paper

Abstract

This paper uses vehicle-level data and differences-in-differences methods to measure the impact of the Federal Government’s Car Allowance Rebate System (CARS) on partial-equilibrium aggregate demand for automobiles. We use confidential data at the BLS on the make, model and model year of cars owned by households in the Consumer Expenditure Survey. We identify the effect of CARS by comparing the transactions of households with automobiles that are eligible for CARS based on model year and miles-per-gallon, to the transactions of households with automobiles that are just ineligible for CARS based on these criteria. A partial-equilibrium calculation implies that this program raised ggregate purchases over a couple of months by 540,000 automobiles, generating roughly $12 billion in additional demand for $2.9 billion in Federal outlays and coinciding with the end of the Great Recession. However,consistent with theory and previous research, this large effect was due to short-term intertemporal substitution in response to the temporary price subsidy: point estimates suggest that cumulative, partial-equilibrium auto sales were unaffected by the program 7 months after its initiation.
Original languageEnglish (US)
Number of pages25
StatePublished - Dec 2014

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