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The Benefits of Cash for Clunkers

Thursday October 31st, 2013   •   Posted by Craig Eyermann at 7:03am PDT   •  

Cash-For-Clunker-Car-Disabling_2-source-portland-bureau-of-transportation Before Obamacare reared its ugly head, President Obama’s signature economic achievement was the 2009 American Recovery and Reinvestment Act, which is perhaps better knows as the “Stimulus Bill.” The highest profile part of that act was the federal government’s Car Allowance Rebate System, better known as the “Cash for Clunkers” program, where people could get either a $3,500 or $4,500 subsidy from the federal government if they traded in an old gas-guzzling car for a new, more fuel-efficient model, depending upon the kind of vehicle they were trading in.

Ted Gayer and Emily Parker of the Brookings Institution have studied the economic impact of that program. Here is the short summary of their findings:

The Car Allowance Rebate System (CARS) or “cash for clunkers” program, launched during the height of the recession with the intention of stimulating the economy, creating jobs, and reducing emissions, was actually far more expensive per job created than alternative fiscal stimulus programs. Ted Gayer and Emily Parker have performed a wide-spread evaluation of the various aspects of the program, from numbers of vehicles traded-in to impact on GDP, cost per job, environmental impact and the types of consumers who took advantage of the program. Among other conclusions, they found that:

  • The $2.85 billion program provided a short-term boost in vehicle sales, but the small increase in employment came at a far higher implied cost per job created ($1.4 million) than other fiscal stimulus programs, such as increasing unemployment aid, reducing employers’ and employees’ payroll taxes, or allowing the expensing of investment costs.
  • Total emissions reduction was not substantial because only about half a percent of all vehicles in the United States were the new, more energy-efficient CARS vehicles.
  • The program resulted in a small gasoline reduction equivalent only to about 2 to 8 days’ worth of current usage.
  • In terms of distributional effects, compared to households that purchased a new or used vehicle in 2009 without a voucher, CARS program participants had a higher before-tax income, were older, more likely to be white, more likely to own a home, and more likely to have a high-school and a college degree.

Putting their findings a bit differently, almost anything else would have been a better use of taxpayer dollars than the Cash for Clunkers program, as according to one estimate, the $2.85 billion program really produced a $1.5 billion deadweight loss to the U.S. economy.

Featured Image:
City of Portland, Oregon Bureau of Transportation

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October 2013