Assessing Temporary Product-Specific Subsidies: A Time Series Intervention Analysis

Abstract

We propose an analytical framework based on the Kalman Filter to quantify central distortionary effects of product-specific subsidies. In our application, we use time series of foreign and domestic order book levels during and after the temporary installation of a “cash for clunkers” subsidy by the German government in 2009 to assess implied disruptions in the German automobile sector and eleven competing industries of the German manufacturing sector. We find stimulus-effects to be rather mild, some evidence of intertemporal program reversal, and consumers’ windfall gains to clearly come at the expense of other industries.

Keywords: automobile industry, regime changes, counterfactual analysis

JEL Classification: E320, E620, L620, C320