Discussion paper
DP7517 Qualitative Effects of Cash-For-Clunkers Programs
We document how automobile scrappage incentives similar to the ?2009 Car Allowance Rebate System? (cars) may influence drivers? tastes in favor of fuel-efficient automobiles. Between 1994 and 2000 the market share of diesel automobiles doubled after Spanish government sponsored two scrappage programs. We show that demand for diesel automobiles was not driven only by better mileage; that gasoline and diesel models became closer substitutes over time; and that automobile manufacturers reduced their markups on gasoline automobiles as their demand decreased. These programs simply accelerated a change of preference that was already on its way when they were implemented.
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