Cash for Clunkers Had Modest and Short-Lived Effects

A sharp decline in sales after the program ended suggests that it had a muted total effect on auto purchases

Under the $2.85 billion "Cash for Clunkers" program, the federal government paid automobile dealers between $3,500 and $4,500 each time a customer traded in an older, less fuel-efficient vehicle and purchased a newer, more fuel-efficient vehicle. The rebates were passed on to customers as a purchase incentive. The program was designed to boost automobile sales and to stimulate the economy.

In The Effects of Fiscal Stimulus: Evidence from the 2009 "Cash for Clunkers" Program (NBER Working Paper No. 16351), co-authors Atif Mian and Amir Sufi find that in 957 U.S. cities, the surge in automobile sales was short-lived while the program was in place. About 360,000 automobile purchases were induced in July and August 2009. Most of these purchases simply were brought forward by a few months: a sharp decline in sales after the program ended suggests that it had a muted total effect on auto purchases, the authors conclude.

For their analysis, Mian and Sufi compare cities with high numbers of "clunkers" in the summer of 2008 to cities with lower numbers of clunkers. Their entire sample accounts for 96 percent of U.S. auto sales. The researchers also attempt to tease out evidence of any positive economic impacts on cities with high numbers of clunkers, or with high numbers of employees working in the auto industry. They find some increased employment in cities with a high proportion of auto-industry employment, but caution that this may have been attributable to the federal bailouts of General Motors and Chrysler in early 2009. There is no evidence of an effect on house prices or household default rates in cities with higher exposure to the program.

-- Kimberly Blanton