The Incidence of Cash for Clunkers: An Analysis of the 2009 Car Scrappage Scheme in Germany

University of Zurich Working Paper No. 68

45 Pages Posted: 11 Apr 2012

See all articles by Ashok Kaul

Ashok Kaul

Saarland University; University of Zurich

Gregor Pfeifer

The University of Sydney

Stefan Witte

Saarland University

Date Written: April 5, 2012

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 benefited 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.

Keywords: cash-for-clunkers, scrappage scheme, incidence, subsidy, pricing

JEL Classification: H22, D12, L62

Suggested Citation

Kaul, Ashok and Pfeifer, Gregor and Witte, Stefan, The Incidence of Cash for Clunkers: An Analysis of the 2009 Car Scrappage Scheme in Germany (April 5, 2012). University of Zurich Working Paper No. 68, Available at SSRN: https://ssrn.com/abstract=2034394 or http://dx.doi.org/10.2139/ssrn.2034394

Ashok Kaul (Contact Author)

Saarland University ( email )

Campus C 31
Saarbrücken, 66123
Germany

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Gregor Pfeifer

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Stefan Witte

Saarland University ( email )

Campus, Building C3.1
Room 313
Saarbrücken, 66111
Germany

HOME PAGE: http://www.uni-saarland.econpol.de

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