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The Production Impact Of “Cash-For-Clunkers”: Implications For Stabilization Policy

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  • ADAM COPELAND
  • JAMES KAHN

Abstract

Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “cash-for-clunkers” program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such policies by their impact on spending alone.
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Suggested Citation

  • 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, January.
    • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:288-303
    DOI: j.1465-7295.2011.00443.x
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    1. James A. Kahn & Mark Bils, 2000. "What Inventory Behavior Tells Us about Business Cycles," American Economic Review, American Economic Association, vol. 90(3), pages 458-481, June.
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    Cited by:

    1. repec:bla:irvfin:v:17:y:2017:i:1:p:147-154 is not listed on IDEAS
    2. Ashok Kaul & Gregor Pfeifer & Stefan Witte, 2016. "The incidence of Cash for Clunkers: Evidence from the 2009 car scrappage scheme in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1093-1125, December.
    3. Alessandro Gavazza & Alessandro Lizzeri & Nikita Roketskiy, 2014. "A Quantitative Analysis of the Used-Car Market," American Economic Review, American Economic Association, vol. 104(11), pages 3668-3700, November.
    4. repec:aea:aejapp:v:9:y:2017:i:3:p:1-35 is not listed on IDEAS
    5. Grigolon, Laura & Leheyda, Nina & Verboven, Frank, 2016. "Scrapping subsidies during the financial crisis — Evidence from Europe," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 41-59.
    6. Jeremy West & Mark Hoekstra & Jonathan Meer & Steven L. Puller, 2015. "Vehicle Miles (Not) Traveled: Why Fuel Economy Requirements Don't Increase Household Driving," NBER Working Papers 21194, National Bureau of Economic Research, Inc.
    7. Leheyda, Nina & Verboven, Frank, 2013. "Scrapping Subsidies during the Financial Crisis - Evidence from the Europe," CEPR Discussion Papers 9629, C.E.P.R. Discussion Papers.
    8. Heechul Min, 2015. "Korea's Cash-for-Clunkers Program: Household-Level Evidence," Asian Economic Journal, East Asian Economic Association, vol. 29(4), pages 347-363, December.
    9. Adam Copeland & James A. Kahn, 2012. "Exchange rate pass-through, markups, and inventories," Staff Reports 584, Federal Reserve Bank of New York.
    10. Huang, Jian & Leng, Mingming & Liang, Liping & Luo, Chunlin, 2014. "Qualifying for a government’s scrappage program to stimulate consumers’ trade-in transactions? Analysis of an automobile supply chain involving a manufacturer and a retailer," European Journal of Operational Research, Elsevier, vol. 239(2), pages 363-376.
    11. Mark Hoekstra & Steven L. Puller & Jeremy West, 2017. "Cash for Corollas: When Stimulus Reduces Spending," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 1-35, July.
    12. Klößner, Stefan & Pfeifer, Gregor, 2015. "Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113207, Verein für Socialpolitik / German Economic Association.
    13. Chao Wei & Shanjun Li, 2014. "The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs," Working Papers 2014-12, The George Washington University, Institute for International Economic Policy.
    14. Paredes, Joan, 2017. "Subsidising car purchases in the euro area: any spill-over on production?," Working Paper Series 2094, European Central Bank.
    15. West, Jeremy & Hoekstra, Mark & Meer, Jonathan & Puller, Steven L., 2017. "Vehicle miles (not) traveled: Fuel economy requirements, vehicle characteristics, and household driving," Journal of Public Economics, Elsevier, vol. 145(C), pages 65-81.

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