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Scrapping Subsidies during the Financial Crisis - Evidence from the Europe

Listed author(s):
  • Leheyda, Nina
  • Verboven, Frank

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9629.

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Date of creation: Sep 2013
Handle: RePEc:cpr:ceprdp:9629
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  1. Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, June.
  2. Sriram Venkataraman & Gregor Matvos & Chad Syverson & Business & Business & Ali Hortacsu, 2010. "Are Consumers Affected by Durable Goods Makers’ Financial Distress? The Case of Auto Manufacturers," 2010 Meeting Papers 836, Society for Economic Dynamics.
  3. Omar Licandro & Antonio R. Sampayo, 2006. "The effects of replacement schemes on car sales: the Spanish case," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 239-282, May.
  4. Esteban Susanna, 2007. "Effective Scrappage Subsidies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-32, February.
  5. Grigolon, Laura & Leheyda, Nina & Verboven, Frank, 2012. "Public support for the European car industry: An integrated analysis," ZEW Discussion Papers 12-077, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Orley Ashenfelter & Daniel Hosken & Matthew Weinberg, 2009. "Generating Evidence to Guide Merger Enforcement," CPI Journal, Competition Policy International, vol. 5.
  7. Meghan Busse & Jorge Silva-Risso & Florian Zettelmeyer, 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions," American Economic Review, American Economic Association, vol. 96(4), pages 1253-1270, September.
  8. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  9. repec:pri:cepsud:183ashenfelter is not listed on IDEAS
  10. 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.
  11. Jerome Adda & Russell Cooper, 2000. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 778-806, August.
  12. 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.
  13. Robert W. Hahn, 1995. "An Economic Analysis of Scrappage," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 222-242, Summer.
  14. 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.
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