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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

We evaluate 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. We find that CARS caused roughly 500,000 purchases during the program period and that the liquidity provided by CARS was critical for generating this large response. CARS provided less liquidity for households owning clunkers securing loans, since participation required loan repayment. The participation rate of these households was low, which we attribute to liquidity constraints and distinguish from the effects of other indebtedness, household income, and the size of the program subsidy.

Suggested Citation

  • Daniel Green & Brian T. Melzer & Jonathan A. Parker & Arcenis Rojas, 2016. "Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand," NBER Working Papers 22878, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22878
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    References listed on IDEAS

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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:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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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