Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment?

Klößner, Stefan and Pfeifer, Gregor (2018): Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment?

Abstract

We examine the impact of the EUR 5 billion German Cash-for-Clunkers program on vehicle registrations and respective CO2 emissions. To construct proper counterfactuals, we develop the multivariate synthetic control method using time series of economic predictors (MSCMT) and show (asymptotic) unbiasedness of the corresponding effect estimator under quite general conditions. Using cross-validation for determining an optimal specification of predictors, we do not find significant effects for CO2 emissions, while the stimulus’ impact on vehicle sales is strongly positive. Modeling different buyer subgroups, we disentangle this effect: 530,000 purchases were simply windfall gains; 550,000 were pulled forward; and 850,000 vehicles would not have been purchased in absence of the subsidy, worth EUR 17 billion.

• Item Type: MPRA Paper
• Language: English
• Keywords: Generalized Synthetic Controls; Cross-Validation; Cash-for-Clunkers; CO2 Emissions
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; D - Microeconomics > D0 - General > D04 - Microeconomic Policy: Formulation, Implementation, and Evaluation; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects

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