International Tax and Public Finance

, Volume 23, Issue 6, pp 1093–1125 | Cite as

The incidence of Cash for Clunkers: Evidence from the 2009 car scrappage scheme in Germany

Article

Abstract

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.

Keywords

Cash for Clunkers Scrappage scheme Incidence  Subsidy Pricing 

JEL Classification

H22 D12 L62 

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ZurichZurichSwitzerland
  2. 2.Department of EconomicsSaarland UniversitySaarbrückenGermany
  3. 3.Department of EconomicsUniversity of HohenheimStuttgartGermany
  4. 4.IPE – Institute for Policy EvaluationFrankfurt am MainGermany

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