The incidence of Cash for Clunkers: Evidence from the 2009 car scrappage scheme in Germany
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This paper investigates the German car scrappage program, focusing on the incidence of the premium. We ask how much of the €2500 ($3500) buyer subsidy is actually captured by the demand side. More precisely, we analyze the program’s impact on different car segments, allowing for heterogeneity in incidence at different points in the vehicle price distribution. Using a unique microtransaction data set, we find that the incidence of the subsidy strongly and significantly varies across price segments. Subsidized buyers of cheap cars paid a little more than comparable buyers who did not receive the subsidy, indicating incidence amounts slightly below 100 %. For more expensive vehicles, subsidized buyers were granted large extra discounts on top of the government premium, translating into incidence amounts considerably greater than 100 %. Taken together, this results in an aggregate incidence amount of up to plus €350 million, suggesting that the positive effect for expensive cars overcompensates the negative effect for small cars.
KeywordsCash for Clunkers Scrappage scheme Incidence Subsidy Pricing
JEL ClassificationH22 D12 L62
The authors are grateful for valuable remarks from the Editor, Ron Davies, and two anonymous referees. Moreover, we thank Martin Becker, Nadja Dwenger, Marc Escrihuela Villar, Paul Grieco, Rainer Haselmann, Stefan Klößner, Dieter Schmidtchen, and Michael Wolf. Also, we are thankful for inputs from the participants of the EEA Conference, the IIOC, the Applied Micro Seminar at Penn State, the ACDD Conference, the Econometric Society Australasian Meeting, the Warsaw International Economic Meeting, the Annual Meeting of the German Economic Association, and the IIPF Conference.
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