Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

39 Pages Posted: 5 Dec 2016

See all articles by Daniel Green

Daniel Green

Harvard University - Business School (HBS)

Brian Melzer

Federal Reserve Bank of Chicago

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Arcenis Rojas

U.S. Bureau of Labor Statistics

Date Written: December 2016

Abstract

We evaluate the Car Allowance Rebate System (CARS) by comparing the vehicle purchases and disposals of households with eligible “clunkers” to those of households with similar, but ineligible, vehicles. We find that CARS caused roughly 500,000 purchases during the program period and that the liquidity provided by CARS was critical for generating this large response. CARS provided less liquidity for households owning clunkers securing loans, since participation required loan repayment. The participation rate of these households was low, which we attribute to liquidity constraints and distinguish from the effects of other indebtedness, household income, and the size of the program subsidy.

Suggested Citation

Green, Daniel and Melzer, Brian and Parker, Jonathan A. and Rojas, Arcenis, Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand (December 2016). NBER Working Paper No. w22878. Available at SSRN: https://ssrn.com/abstract=2880317

Daniel Green (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA
United States
617-253-7218 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Arcenis Rojas

U.S. Bureau of Labor Statistics

Behavioral Science Research Center
Washington, DC
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
6
Abstract Views
191
PlumX Metrics