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The incidence of Cash for Clunkers: an analysis of the 2009 car scrappage scheme in Germany

Author

Listed:
  • Ashok Kaul
  • Gregor Pfeifer
  • Stefan Witte

Abstract

Governments all over the world have invested tens of billions of dollars in car scrappage programs to fuel the economy in 2009. We investigate the German case using a unique micro transaction dataset covering the years 2007 to 2010. Our focus is on the incidence of the subsidy, i.e., we ask how much of the € 2,500 buyer subsidy is captured by the supply-side through an increase in selling prices. Using regression analysis, we find that average prices in fact decreased for subsidized buyers in comparison to non-subsidized ones, suggesting that eventually subsidized customers benefitted by more than the subsidy amount. However, the incidence was heterogeneous across price segments. Subsidized buyers of cheap cars paid more than comparable buyers who did not receive the subsidy, e.g. for cars of € 12,000 car dealers reaped about 8% of the scrappage prime. The opposite was true for more expensive cars, e.g. subsidized buyers of cars of € 32,000 were granted an extra discount of about € 1,100. For cars priced about € 18,000, we find no price discrimination, i.e., in this price segment consumers fully captured the transfer. Our results can be explained by optimizing behavior on the supply-side both in the lower and upper price segments. The results are extremely robust to extensive sensitivity checks.

Suggested Citation

  • Ashok Kaul & Gregor Pfeifer & Stefan Witte, 2012. "The incidence of Cash for Clunkers: an analysis of the 2009 car scrappage scheme in Germany," ECON - Working Papers 068, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:068
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    File URL: http://www.econ.uzh.ch/static/wp/econwp068.pdf
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    References listed on IDEAS

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    1. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    2. Esteban Susanna, 2007. "Effective Scrappage Subsidies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-32, February.
    3. Jesse Rothstein, 2010. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 177-208, February.
    4. Frank Verboven, 2002. "Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 275-297, Summer.
    5. Robert W. Hahn, 1995. "An Economic Analysis of Scrappage," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 222-242, Summer.
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    Citations

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    Cited by:

    1. Xavier D'hautfoeuille & Isis Durrmeyer & Philippe Février, 2014. "Automobile Prices in Market Equilibrium with Unobserved Price Discrimination," Working Papers 2014-38, Center for Research in Economics and Statistics.
    2. 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.
    3. Malina, Christiane, 2016. "The environmental impact of vehicle circulation tax reform in Germany," CAWM Discussion Papers 86, University of Münster, Center of Applied Economic Research Münster (CAWM).

    More about this item

    Keywords

    Cash-for-Clunkers; scrappage scheme; incidence; subsidy; pricing;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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