NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

Daniel Green, Brian T. Melzer, Jonathan A. Parker, Arcenis Rojas

NBER Working Paper No. 22878
Issued in December 2016, Revised in May 2018
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics, Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w22878

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