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Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies

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Author Info
Jerome Adda
Russell Cooper

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Abstract

This paper studies the effects of subsidies on durable goods markets. In particular, we focus on a recent policy in France in which the governments of Balladur and Juppé subsidized the replacement of old cars with new ones. To study this policy, we construct a dynamic stochastic discrete choice model of car ownership at the household level. The resulting decision rules and equilibrium conditions are used to estimate the underlying parameters of the model using aggregate data. These policy functions are used to evaluate the short- and long-run effects of the French policies. We find that these policies do stimulate the automobile sector in the short run but, through the induced changes in the cross-sectional distribution of car ages, create the basis for subsequent low activity. Further, while these policies increase government revenues in the short run, revenues in the long run are lower relative to a baseline without intervention.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 4 (August)
Pages: 778-806
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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:4:p:778-806

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  2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September. [Downloadable!] (restricted)
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  7. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425. [Downloadable!] (restricted)
  8. Raouf Boucekkine & Omar Licandro, . "Replacement echoes in durable goods purchases," Working Papers 97-15, FEDEA.
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  13. Caballero, Ricardo J, 1990. "Expenditure on Durable Goods: A Case for Slow Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 727-43, August. [Downloadable!] (restricted)
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  14. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Raffaello Bronzini & Guido de Blasio & Guido Pellegrini & Alessandro Scognamiglio, 2008. "The effect of investment tax credit: Evidence from an atypical programme in Italy," Temi di discussione (Economic working papers) 661, Bank of Italy, Economic Research Department. [Downloadable!]
  2. Bertola, Giuseppe & Guiso, Luigi & Pistaferri, Luigi, 2002. "Uncertainty and Consumer Durables Adjustment," CEPR Discussion Papers 3332, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Omar Licandro & Antonio R. Sampayo, 2005. "The effects of replacement schemes on car sales: the Spanish case," Economics Working Papers ECO2005/20, European University Institute. [Downloadable!]
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  4. Yurko, Anna, 2008. "From Consumer Incomes to Car Ages: How the Distribution of Income Affects the Distribution of Vehicle Vintages," MPRA Paper 8849, University Library of Munich, Germany, revised Apr 2008. [Downloadable!]
  5. Russell Cooper & Joao Ejarque, 2000. "Exhuming Q: Market Power vs. Capital Market Imperfections," Econometric Society World Congress 2000 Contributed Papers 0528, Econometric Society. [Downloadable!]
    Other versions:
  6. Russell Cooper & Jonathan Willis, 2002. "The cost of labor adjustment : inferences from the gap," Research Working Paper RWP 02-11, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  7. Jerome Adda & Russell Cooper, 2000. "The Dynamics of Car Sales: A Discrete Choice Approach," NBER Working Papers 7785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Victor Aguirregabiria, 2007. "Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior," Working Papers tecipa-282, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  9. Christopher L. House, 2008. "Fixed Costs and Long-Lived Investments," NBER Working Papers 14402, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE. [Downloadable!]
  11. Harald Oberhofer, 2009. "Firm growth, European industry dynamics and domestic business cycles," Working Papers 2009-18, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
  12. Victor Aguirregabiria, 2005. "Another Look at the Identification of Dynamic Discrete Decision Processes," Econometrics 0504006, EconWPA. [Downloadable!]
  13. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Sandström, F. Mikael, 2003. "Car Age, Taxation, Scrappage Premiums and the ELV Directive," Working Paper Series 591, Research Institute of Industrial Economics. [Downloadable!]
  15. repec:bep:thecon:v:7:y:2007:i:1:p:1200-1200 is not listed on IDEAS
  16. Antonio R. Sampayo & Luis A. Puch & Omar Licandro, 2006. "Secondhand market and the lifetime of durable goods," Working Papers 2006-10, FEDEA. [Downloadable!]
  17. Luigi Cannari & Leandro D'Aurizio & Guido de Blasio, 2006. "The effectiveness of investment subsidies: evidence from survey data," Questioni di Economia e Finanza (Occasional Papers) 4, Bank of Italy, Economic Research Department. [Downloadable!]
  18. Raffaello Bronzini & Guido De Blasio, 2005. "Evaluating the impact of investment incentives - the case of the Italian Law 488," ERSA conference papers ersa05p649, European Regional Science Association. [Downloadable!]
  19. Le-Yu Chen, 2009. "Identification of structural dynamic discrete choice models," CeMMAP working papers CWP08/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  20. Garrone Giovanna, 2004. "Scrapping old cars for reducing air pollution: an environmental evaluation of the italian 1997-1998 incentive policy," Department of Economics Working Papers 200404, University of Turin. [Downloadable!]
  21. Boyan Jovanovic, 2008. "When Should Firms Invest in Old Capital?," NBER Working Papers 14000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Yurko, Anna, 2008. "Can Increases in Real Consumer Incomes Explain the Aging of Motor Vehicles in the US?," MPRA Paper 8850, University Library of Munich, Germany, revised Apr 2008. [Downloadable!]
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