Working Paper: CEPR ID: DP9629
Authors: Nina Leheyda; Frank Verboven
Abstract: We study the effects of the car scrapping subsidies in Europe during the financial crisis. We make use of a rich data set of all car models sold in nine European countries, observed at a monthly level during 2005-2011. We employ a difference-in-differences approach, exploiting the fact that different countries adopted their programs at different points in time. We find that the scrapping schemes played a strong role in stabilizing total car sales in 2009: they prevented a total car sales reduction of 17.4% in countries with schemes targeted to low emission vehicles, and they prevented a 14.8% sales reduction in countries with non-targeted schemes. In contrast, the scrapping schemes only had small environmental benefits: without the schemes, average fuel consumption of new purchased cars would have been only 1.3% higher in countries with targeted schemes and 0.5% higher in countries with non-targeted schemes. We do not find evidence of crowding out due to substitution from non-eligible to eligible cars in countries with targeted schemes. Finally, we identify some competitive and trade effects from the schemes: domestic car producers benefited at the expense of foreign competitors in the countries where the schemes were not targeted.
Keywords: automobile market; financial crisis; scrapping subsidies
JEL Codes: F14; H25; L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scrapping schemes (D47) | total car sales (L62) |
| 1% increase in subsidy (H23) | car sales of eligible cars under targeted schemes (L62) |
| 1% increase in subsidy (H23) | car sales of all cars under non-targeted schemes (L81) |
| scrapping schemes (D47) | average fuel consumption of new cars (Q41) |
| domestic car producers benefitted more than foreign competitors (F14) | non-targeted schemes (H23) |
| targeted schemes (J68) | no crowding out from non-eligible to eligible cars (C24) |