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Scrapping subsidies during the financial crisis: Evidence from Europe

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  • Leheyda, Nina
  • Verboven, Frank

Abstract

We study the effects of the car scrapping subsidies in Europe during the financial crisis. We make use of a rich data set of all car models sold in nine European countries, observed at a monthly level during 2005-2011.We employ a difference-in-differences approach, exploiting the fact that different countries adopted their programs at different points in time. We find that the scrapping schemes played a strong role in stabilizing total car sales in 2009: they prevented a total car sales reduction of 17.4% in countries with schemes targeted to low emission vehicles, and they prevented a 14.8% sales reduction in countries with non-targeted schemes. In contrast, the scrapping schemes only had small environmental benefits: without the schemes, average fuel consumption of new purchased cars would have been only 1.3% higher in countries with targeted schemes and 0.5% higher in countries with non-targeted schemes. We do not find evidence of crowding out due to substitution from non-eligible to eligible cars in countries with targeted schemes. Finally, we identify some competitive and trade effects from the schemes: domestic car producers benefited at the expense of foreign competitors in the countries where the schemes were not targeted. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-079.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13079

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Keywords: scrapping subsidies; economic assessment of state aid; financial crisis; automobile market;

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  1. Esteban Susanna, 2007. "Effective Scrappage Subsidies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-32, February.
  2. Matthew C. Weinberg, 2011. "More Evidence on the Performance of Merger Simulations," American Economic Review, American Economic Association, vol. 101(3), pages 51-55, May.
  3. Pasquale Schiraldi, 2008. "Automobile replacement: a dynamic structural approach," LSE Research Online Documents on Economics 21780, London School of Economics and Political Science, LSE Library.
  4. Adam Copeland & James Kahn, 2013. "The Production Impact Of “Cash-For-Clunkers”: Implications For Stabilization Policy," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 288-303, 01.
  5. Laura GRIGOLON & Nina LEHEYDA & Frank VERBOVEN, 2012. "Public support for the European car industry: an integrated analysis," Center for Economic Studies - Discussion papers ces12.14, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  6. Orley Ashenfelter & Daniel Hosken & Matthew Weinberg, 2009. "Generating Evidence to Guide Merger Enforcement," CPI Journal, Competition Policy International, vol. 5.
  7. 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.
  8. Li, Shanjun & Linn, Joshua & Spiller, Elisheba, 2013. "Evaluating “Cash-for-Clunkers”: Program effects on auto sales and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 175-193.
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