Do Public Subsidies Sell Green Cars? Evidence from the U.S. 'Cash for Clunkers' Program

Abstract

One question surrounding the 2009 U.S. “Cash for Clunkers” program is whether it induced consumers to purchase greener vehicles than they would otherwise have purchased. This paper views the program as a natural experiment, which offered higher rebates to consumers buying more fuel-efficient vehicles, and shows that awarding an extra $1,000 on a vehicle made 7.2% of consumers switch to it. Hence the program, giving away nearly $3 billion, should have drawn many consumers to the subsidized greener vehicles, producing substantial environmental gains. This finding should interest policymakers evaluating similar programs to stimulate the economy while aiding the environment.

Keywords: Public Subsides, Vehicle Choice, Environmental Policy, Energy Policy

JEL Classification: Q58, Q48, R48, H23