The Cost of Greening Stimulus: A Dynamic Analysis of Vehicle Scrappage Programs

51 Pages Posted: 20 Apr 2013 Last revised: 28 Mar 2021

See all articles by Shanjun Li

Shanjun Li

Cornell University - School of Applied Economics and Management

Youming Liu

Bank of Canada

Chao D. Wei

George Washington University - Department of Economics

Date Written: April 20, 2013

Abstract

During the Great Recession, many countries adopted stimulus programs designed to achieve two goals: to stimulate economic activity in lagging durable goods sectors, and to protect or enhance environmental quality. Advocates of such programs contend that the environmental benefits are co-benefits of economic stimulus. This paper investigates the potential tradeoff between the stimulus and environmental objectives in the context of the popular U.S. Cash-for-Clunkers (CFC) vehicle scrappage program. We develop and estimate a dynamic discrete choice model of vehicle ownership, and conduct counterfactual analysis comparing the implemented policy with alternative policy designs. Results show that design elements to achieve environmental benefits significantly limit the program's impact on demand stimulus. The cost of demand stimulus after netting out environmental benefits under the program could be 25 percent higher in terms of vehicle sales and 64 percent higher in terms of consumer spending than alternative policy designs without explicitly targeting the environmental objective. Our findings serve as a cautionary tale for green stimulus proposals that aim to address both the economic crisis from the COVID-19 pandemic and climate change.

Keywords: Stimulus, Dynamic Discrete Choice Model, Vehicle Scrappage

JEL Classification: E62, H23, H31, Q85

Suggested Citation

Li, Shanjun and Liu, Youming and Wei, Chao D., The Cost of Greening Stimulus: A Dynamic Analysis of Vehicle Scrappage Programs (April 20, 2013). Available at SSRN: https://ssrn.com/abstract=2254375 or http://dx.doi.org/10.2139/ssrn.2254375

Shanjun Li (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Youming Liu

Bank of Canada ( email )

234 Wellington St.
Ottawa, Ontario K1A 0G9
Canada

HOME PAGE: http://youming-liu.com

Chao D. Wei

George Washington University - Department of Economics ( email )

Monroe Hall, Suite 340
2115 G Street, NW
Washington, DC 20052
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
366
Abstract Views
2,193
rank
114,022
PlumX Metrics