Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand
Brian T. Melzer
Jonathan A. Parker
- American Economic Journal: Economic Policy (Forthcoming)
This paper evaluates 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. CARS caused roughly 500,000 purchases during the
program period. The provision of liquidity, through a rebate usable
as a down payment, was critical in generating this large response.
Participation was rare among households that owned clunkers with
outstanding loans, which required loan repayment. This decline in
participation is attributed to households' preference for lower down
payments and distinguished from the effects of income, other indebtedness, and the program subsidy.
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