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Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies

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  • Jerome Adda
  • Russell Cooper

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 Jupp� 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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Bibliographic 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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  1. 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.
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  11. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  12. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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  15. repec:fth:coluec:465 is not listed on IDEAS
  16. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
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