Discussion Paper

Evaluating “Cash-for-Clunkers": Program Effects on Auto Sales and the Environment

Oct 19, 2011 | Shanjun Li, Joshua Linn, Elisheba Beia Spiller

Abstract

“Cash-for-Clunkers” was a $3 billion program that attempted to stimulate the U.S. economy and improve the environment by encouraging consumers to retire older vehicles and purchase more fuel-efficient new vehicles. We investigate the effects of this program on new vehicle sales and the environment. Using Canada as the control group in a difference-in-differences framework, we find that the program increased new vehicle sales by about 0.36 million during July and August of 2009, implying that approximately 45 percent of the spending went to consumers who would have purchased a new vehicle anyway. Our results suggest no gain in sales beyond 2009 and hence no meaningful stimulus to the economy. In addition, the program will reduce CO2 emissions by only 9 to 28.4 million tons, implying a cost per ton ranging from $91 to $288 even after accounting for reduced criteria pollutants.