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Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

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  • Daniel Green
  • Brian T. Melzer
  • Jonathan A. Parker
  • Arcenis Rojas

Abstract

This paper evaluates the Car Allowance Rebate System (CARS) by comparing the vehicle purchases and disposals of households with eligible "clunkers" to those of households with similar but ineligible vehicles. CARS caused roughly 500,000 purchases during the program period. The provision of liquidity, through a rebate usable as a down payment, was critical in generating this large response. Participation was rare among households that owned clunkers with outstanding loans, which required loan repayment. This decline in participation is attributed to households' preference for lower down payments and distinguished from the effects of income, other indebtedness, and the program subsidy.

Suggested Citation

  • Daniel Green & Brian T. Melzer & Jonathan A. Parker & Arcenis Rojas, 2020. "Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 178-211, November.
  • Handle: RePEc:aea:aejpol:v:12:y:2020:i:4:p:178-211
    DOI: 10.1257/pol.20170122
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    2. Francesca Parodi, 2021. "Consumption Tax Cuts in a Recession," Carlo Alberto Notebooks 658, Collegio Carlo Alberto.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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