Harvard Business School
Boston, MA 02163
Institutional Affiliation: Harvard University
NBER Working Papers and Publications
|December 2016||Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand|
with , , : w22878
We evaluate 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. We find that CARS caused roughly 500,000 purchases during the program period and that the liquidity provided by CARS was critical for generating this large response. CARS provided less liquidity for households owning clunkers securing loans, since participation required loan repayment. The participation rate of these households was low, which we attribute to liquidity constraints and distinguish from the effects of other indebtedness, household income, and the size of the program subsidy.