U.S. Bureau of Labor Statistics, , Postal Square B
2 Massachusetts Avenue, N.E.
Washington, DC 20212-0001
NBER Working Papers and Publications
|December 2016||Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand|
with Daniel Green, Brian T. Melzer, Jonathan A. Parker: w22878
We estimate the importance of household liquidity for the effect of the Car Allowance Rebate System (CARS) on vehicle transactions. We measure the average program impact by comparing households with "clunkers" eligible for CARS to households with similar vehicles that were ineligible. The liquidity provided by CARS contributed to its larger than anticipated take-up. Clunkers with existing loans, which required immediate repayment upon trade-in, were traded-in at much lower rates, an effect consistent with liquidity constraints and distinguishable from that of other debt, household income, and the size of the program subsidy. Household debt capacity did not measurably constrain participation.