Cash for Clunkers: More Costly, Less Effective

The “Cash for Clunkers” stimulus program—known formally as the Car Allowance Rebate System (CARS) and initiated by the Obama administration in 2009—failed to achieve its policy objectives in the most cost-effective way possible, according to a widely-quoted (including, recently, by George Will) new study from Ted Gayer and Emily Parker in the Economic Studies Program at Brookings.

Download their paper and policy brief here, and access this informative infographic.

From their conclusion:

The primary motivation for the CARS program was to provide temporary stimulus to counter the economic contraction that was occurring at that time, while also reducing fuel consumption and thus emissions. The evidence suggests that the program did indeed incentivize the sale of more fuel efficient vehicles by pulling sales forward from the near-term future. This resulted in a small and short-lived increase on production, GDP, and job creation. However, the implied cost per job created was much higher than alternative fiscal stimulus policies.

The CARS program was not means-tested, and evidence from the consumer expenditure survey suggests that participants’ income was higher than consumers who purchased a new or used vehicle, but lower than consumers who purchased a new vehicle outside of the CARS program over the same time period. Consumers who participated in the CARS program did not decrease other measures of consumption to do so.

The CARS program led to a slight improvement in fuel economy and some reduction in carbon emissions. The cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost-effective way to reduce emissions, although it was more cost effective than certain other environmental policies, such as the tax subsidy for electric vehicles or the tax credit for ethanol.

In the event of a future economic recession, we would not recommend repeating the CARS program. While the program did accomplish both of its goals of stimulating the automobile market and decreasing carbon emissions, there are more cost effective policy proposals to achieve these objectives.