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Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment

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  • Klößner, Stefan
  • Pfeifer, Gregor

Abstract

We examine the impact of European car scrappage programs on new vehicle registrations and respective CO2 emissions. To construct proper counterfactuals, we develop MSCM-T, the multivariate synthetic control method using time series of economic predictors. Applying MSCM-T to a rich data set covering two outcomes of interest, ten economic predictors, and 23 countries, we first analyze Germany which implemented the largest program. We find that the German subsidy had an immensely positive effect of 1.3 million program-induced new car registrations. Disentangling this effect reveals that almost one million purchases were not pulled forward from future periods, worth more than three times the program's 5 billion budget. However, stabilizing the car market came at the cost of 2.4 million tons of additional CO2 emissions. For other European countries with comparable car retirement schemes, we show further positive results regarding vehicle registrations. Finally, we demonstrate that all non-scrapping countries could have considerably backed their vehicle markets by adopting scrappage subsidies.

Suggested Citation

  • Klößner, Stefan & Pfeifer, Gregor, 2015. "Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113207, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:113207
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    2. Becker, Martin & Klößner, Stefan, 2018. "Fast and reliable computation of generalized synthetic controls," Econometrics and Statistics, Elsevier, vol. 5(C), pages 1-19.
    3. 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.
    4. Gregor Pfeifer & Fabian Wahl & Martyna Marczak, 2018. "Illuminating the World Cup effect: Night lights evidence from South Africa," Journal of Regional Science, Wiley Blackwell, vol. 58(5), pages 887-920, November.
    5. 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.
    6. Christpher Leisinger & Felix Rösel, 2020. "Kaum mehr als ein Strohfeuer – Evaluationsstudien zu Abwrackprämien im Überblick," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 27(03), pages 25-27, June.
    7. 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.

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    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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