Scrapping Subsidies During the Financial Crisis -- Evidence from Europe

39 Pages Posted: 21 Oct 2013

See all articles by Nina Leheyda

Nina Leheyda

ZEW – Leibniz Centre for European Economic Research

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: September 15, 2013

Abstract

We study the effects of the car scrapping subsidies in Europe during the …financial crisis. We make use of a rich data set of all car models sold in nine European countries, observed at a monthly level during 2005-2011.We employ a difference-in-differences approach, exploiting the fact that different countries adopted their programs at different points in time. We fi…nd that the scrapping schemes played a strong role in stabilizing total car sales in 2009: they prevented a total car sales reduction of 17.4% in countries with schemes targeted to low emission vehicles, and they prevented a 14.8% sales reduction in countries with non-targeted schemes. In contrast, the scrapping schemes only had small environmental benefi…ts: without the schemes, average fuel consumption of new purchased cars would have been only 1.3% higher in countries with targeted schemes and 0.5% higher in countries with non-targeted schemes. We do not …find evidence of crowding out due to substitution from non-eligible to eligible cars in countries with targeted schemes. Finally, we identify some competitive and trade effects from the schemes: domestic car producers benefi…ted at the expense of foreign competitors in the countries where the schemes were not targeted.

Keywords: scrapping subsidies, economic assessment of state aid, …financial crisis, automobile market

JEL Classification: H25, L52, F14

Suggested Citation

Leheyda, Nina and Verboven, Frank, Scrapping Subsidies During the Financial Crisis -- Evidence from Europe (September 15, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-079, Available at SSRN: https://ssrn.com/abstract=2343127 or http://dx.doi.org/10.2139/ssrn.2343127

Nina Leheyda (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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