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Environmentalism, Stimulus, And Inequality Reduction Through Industrial Policy: Did Cash For Clunkers Achieve The Trifecta?

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  • Keaton S. Miller
  • Wesley W. Wilson
  • Nicholas G. Wood

Abstract

The 2009 American Cash for Clunkers program, which subsidized consumers who scrapped old vehicles and purchased new vehicles, was promoted by appealing to multiple constituencies. We evaluate the policy and alternatives according to its stated goals: emissions reductions, economic stimulus, and reducing inequality. We calibrate a dynamic partial equilibrium portfolio model to match consumer expenditure data from 1998 to 2011 focusing on heterogeneity across cars and trucks. We find the program generated $0.17 in environmental benefits, $0.28 in consumer surplus, and $0.31 in net discounted additional spending per subsidy dollar. Since subsidies largely went to middle‐income infra‐marginal consumers, the program exacerbated consumption inequality. We evaluate alternative policy designs and find no policy which simultaneously improves all outcomes. (JEL H23, L52, L92, D63)

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  • Keaton S. Miller & Wesley W. Wilson & Nicholas G. Wood, 2020. "Environmentalism, Stimulus, And Inequality Reduction Through Industrial Policy: Did Cash For Clunkers Achieve The Trifecta?," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1109-1128, July.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:3:p:1109-1128
    DOI: 10.1111/ecin.12889
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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