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The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs

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Listed:
  • Shanjun Li

    (Cornell University)

  • Chao Wei

    (George Washington University)

Abstract

During the recent economic crisis, many countries have adopted stimulus programs designed to achieve two goals: to stimulate economic activity in lagging durable goods sectors and to protect or even enhance environmental quality. The environmental bene ts are often viewed and much advocated as co-bene ts of economic stimulus. This paper investigates the potential tradeo between the stimulus and environmental objectives in the context of the popular U.S. Cash-for-Clunkers (CFC) program by developing and estimating a dynamic discrete choice model of vehicle ownership. Results from counterfactual analysis show that design elements to achieve environmental bene ts could signi cantly limit the program impact on demand stimulus: the cost of demand stimulus after netting out environmental bene ts under the program could be 43 percent higher in terms of vehicle sales and 38 percent higher in terms of consumer spending than that from alternative policy designs without explicitly aiming at the environmental objective.

Suggested Citation

  • Shanjun Li & Chao Wei, 2016. "The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs," Working Papers 2016-25, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2016-25
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Zaman, Hosain & Zaccour, Georges, 2020. "Vehicle scrappage incentives to accelerate the replacement decision of heterogeneous consumers," Omega, Elsevier, vol. 91(C).
    3. Myrto Kalouptsidi & Paul T. Scott & Eduardo Souza‐Rodrigues, 2021. "Identification of counterfactuals in dynamic discrete choice models," Quantitative Economics, Econometric Society, vol. 12(2), pages 351-403, May.
    4. Shanjun Li, 2018. "Better Lucky Than Rich? Welfare Analysis of Automobile Licence Allocations in Beijing and Shanghai," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2389-2428.

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    More about this item

    Keywords

    Stimulus; Discrete Choice Model; Vehicle Scrappage;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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