Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies

Posted: 22 Aug 2000

See all articles by Jerome Adda

Jerome Adda

University College London - Department of Economics; Institute for Fiscal Studies (IFS)

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

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Abstract

This paper studies the effects of subsidies on durable goods markets. In particular, we focus on a recent policy in France in which the governments of Balladur and Juppe subsidized the replacement of old cars with new ones. To study this policy, we construct a dynamic stochastic discrete choice model of car ownership at the household level. The resulting decision rules and equilibrium conditions are used to estimate, using aggregate data, the underlying parameters of the model. These policy functions are used to evaluate the short and long run effects of the French policies. We find that these policies do stimulate the automobile sector in the short run but, through the induced changes in the cross sectional distribution of car ages, create the basis for subsequent low activity. Further, while these policies increase government revenues in the short run, revenues in the long run are lower relative to a baseline without intervention.

JEL Classification: C5, D1, H3

Suggested Citation

Adda, Jerome and Cooper, Russell W., Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies. Journal of Political Economy, Vol. 108, Iss. 4, August 2000. Available at SSRN: https://ssrn.com/abstract=235268

Jerome Adda (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Russell W. Cooper

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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