November 2020
Article
American Economic Journal: Economic Policy

Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

By: Daniel Green, Brian Melzer, Jonathan Parker and Arcenis Rojas

Format:Print

Abstract

This paper evaluates 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. CARS caused roughly 500,000 purchases during the program period. The provision of liquidity, through a rebate usable as a down payment, was critical in generating this large response. Participation was rare among households that owned clunkers with outstanding loans, which required loan repayment. This decline in participation is attributed to households' preference for lower down payments and distinguished from the effects of income, other indebtedness, and the program subsidy.

Keywords

Automobiles; Purchasing; Government Incentives; Household; Financial Liquidity; Income; Behavior

Citation

Green, Daniel, Brian Melzer, Jonathan Parker, and Arcenis Rojas. "Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand." American Economic Journal: Economic Policy 12, no. 4 (November 2020): 178–211.