Economic Effects of Cash for Clunkers

Car scrappage schemes are neither a new nor a German invention. Many countries initiated similar programs in or around 2009, as an answer to the ongoing financial and economic crisis. Overall, the world spent about a worth of the GDP of a small EU member country in scrappage schemes. Germany alone contributed a third to the worldwide budget and more than any other country. The present work shows what happened to the German car market and that this effect was very heterogeneous across car price segments. Most importantly, it analyzes the incidence of the subsidy, i.e. the question which part of the subsidy was actually captured by the demand side.