The impact of scrappage programs on the demand for new vehicles: Evidence from Spain

Cantos-Sánchez, Pedro and Gutiérrez-i-Puigarnau, Eva and Mulalic, Ismir (2015): The impact of scrappage programs on the demand for new vehicles: Evidence from Spain.

Abstract

We evaluate the impact of the Spanish car scrappage program introduced in May 2009 on short-run car purchases. The scrappage program was simultaneously discussed and implemented, and was therefore exogenous to the consumers. We analyse the effect of this program on household new car purchase decision and household expenditures. The results show that the scrappage program increased the probability to buy a new car, but decreased the mean expenditure devoted to the purchase of this new vehicle. We also evaluate the impact of the financial aid on the household welfare, which suggests that the scrappage program was neutral.

• Item Type: MPRA Paper
• Language: English
• Keywords: Car demand; scrappage program; economic crisis; subsidy.
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand

References

Abdulai, A. and D. Aubert (2004) “A cross-section analysis of household demand for food and nutrients in Tanzania”, Agricultural Economics, vol. 3(1), 67–79

Adda, J. and R. Cooper (2000) “Balladurette and Juppette: a discrete analysis of scrapping subsidies”, Journal of Political Economy, vol. 108(4), 778–806

Alberini, A., W. Harrington and V. McConnell (1995) “Determinants of participation in accelerated vehicle retirement programs”, The RAND Journal of Economics, vol. 26(1), 93–112

Barros, C. P. and J. Prieto-Rodríguez (2008) “A revenue-neutral tax reform to increase demand for public transport services” Transportation Research Part A: Policy & Practice, vol. 42(4), 659–672

Böckers, V., U. Heimeshoff and A. Müller (2008) “Pull-Forward Effects in the German Car Scrappage Scheme: A Time Series Approach”, DICE Discussion Paper No. 56

Bunch, D. S. (2000) “Automobile demand and type choice”, in: Hensher, D. A. and K. J. Button (eds.), Handbook of Transport Modelling, 463–479 (Oxford: Pergamon)

Dargay, J. M. (2007) “The effect of prices and income on car travel in the UK”, Transportation Research. Part A: Policy & Practice, vol. 41(10), 949–960

Dargay. J. M., D. Gately and M. Sommer (2007) “Vehicle ownership and income growth, worldwide: 1960–2030”, Energy, vol. 28(4), 143–170

De Jong, G.C. (1990) “An indirect utility model of car ownership and private car use”, European Economic Review, vol. 34(5), 971–985

De Jong, G.C. (1991) “A micro-economic model of the joint decision on car ownership and car use”, in: Methods for Understanding Travel Behavior in the 1990s, Proceeding of the Conference International sur les Comportements de Deplacement, Quebec, 387–403

De Jong, G.C, J. Fox, M. Pieters, A. J. Daly and R. Smith (2004) “A comparison of car ownership models”, Transport Reviews, vol. 24(4), 379–408

Deaton, A. and J. Muellbauer (1980) “An almost ideal demand system”, The American Economic Review, vol. 70(3), 312–326

Esteban, S. (2007) “Effective scrappage subsidies”, The B.E. Journal of Theoretical Economics, vol. 7(1), 1–32

Friedman, J. and J. A. Levinsohn (2002) “The distributional impact of Indonesia’s financial crisis on household welfare: a ‘rapid response’ methodology”, World Bank Economic Review, vol. 16(3), 397–423

Hahn, R. W. (1995) “An economic analysis of scrappage”, The RAND Journal of Economics, vol. 26(2), 222–242

Jiménez, J. L., J. Perdiguero and C. García (2011) “Evaluation of Subsidies Programs to Sell Green Cars: Impact on Prices, Quantities and Efficiency”, Document de treball XREAP2011–14

Köhler, H.-D. and J. P. Calleja Jiménez (2012) “The relationship between income concentration and demand structure. The case of automobile demand in Spain”, Atlantic Review of Economics, vol. 2(8)

Leheyda, N. and F. Verboven (2013) “Scrapping Subsidies During the Financial Crisis − Evidence from Europe”, ZEW Discussion Paper No. 13–079

Li, S. and C. Wei (2013) “Toward cost Effective "Green Stimulus": A Dynamic Discrete Analysis of Vehicle Scrappage Programs”, Mimeo

Licandro, O. and A. R. Sampay (2005) “The Effects of Replacement Schemes on Car Sales: The Spanish Case, European University Institute Economics Working Papers ECO2005/20 2005

Mannering, F. and C. Winston (1985) “A dynamic empirical analysis of household vehicle ownership and utilization”, Rand Journal of Economics, vol. 16(2), 215–236

Matas, A. and J.-LL. Raymod (2008) “Changes in the structure of car ownership in Spain”, Transportation Research. Part A: Policy & Practice, vol. 42(1), 187–202

Mian, A. and A. Sufi (2012) “The effects of fiscal stimulus: evidence from the 2009 cash for clunkers program”, The Quarterly Journal of Economics, vol. 127(3), 1107–1142

de Palma, A. and M. Kilani (2008) “Regulation in the automobile industry”, International Journal of Industrial Organization, vol. 26(1), 150–167

Rogers, J.M. and M.B. Gray (1994) “CE data: quintiles of income versus quintiles of outlays”, Monthly Labor Review, vol. 117(12), 32–37

Schiraldi, P. (2011) “Automobile replacement: a dynamic structural approach”, The RAND Journal of Economics, vol. 42(2), 266–291

Shaikh, S. L. and D. M. Larson (2003) “A two-constraint almost ideal demand model of recreation and donations”, The Review of Economics and Statistics, vol. 85(4), 953–961

Slesnick, D.T. (2001) “Consumption and Social Welfare: Living Standards and Their Distribution in the United States”, Cambridge University Press

The Economist (2009a) “Why Cash-for-Clunkers Schemes Make Sense Right Now”, Business.view: Clunky but Effective

The Economist (2009b) “How Generous is your Country’s Car Scrappage Scheme?”, Car Scrappage Schemes: Jump-Starting the Car Industry

Tiezzi, S. (2005) “The welfare effects and the distributive impact of carbon taxation on Italian households”, Energy Policy, vol. 33(12), 1597–1612

Train, K. (1986) “Qualitative Choice Analysis: Theory, Econometrics and an Application to Automobile Demand”, MIT Press.

Wooldridge, J. (2002) “Econometric Analysis of Cross Section and Panel Data”, Cambridge: MIT Press