According to a new paper and policy brief by Brookings, 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 and reducing emissions, actually resulted in only a small and short-lived impact on GDP; a higher implied cost per job created than alternative fiscal stimulus programs; and a higher cost per ton of CO2 reduced than what would be achieved through a policy such as a carbon tax or cap-and-trade.
However, the cost of CO2 reduced was comparable or lower than that achieved through less cost-effective policies such as the tax subsidy for electric vehicles, the analysis concluded. 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.
|Cost per job created. Click to enlarge.||Cost per ton of carbon reduced. Click to enlarge.|
The CARS program, administered by the National Highway Traffic Safety Administration (NHTSA), allowed consumers to trade in an older, less fuel-efficient vehicle for a voucher for either $3,500 or $4,500 (depending on the delta in fuel economy between the trade-in and the new vehicle) to be applied toward the purchase of the newer, more fuel-efficient vehicle. After the “clunker” was traded in, its engine was destroyed. 677,842 clunkers were traded in between 1 July 2009 and 24 August 2009 as part of the program, which issued $2.85 billion in vouchers; NHTSA concluded that the new vehicles purchased under the program averaged 24.9 miles per gallon (9.4 l/100 km), compared to the 15.8 mpg (14.9 l/100 km) averaged by the trade-in vehicles.
Based on an 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, Ted Gayer, Co-director of Economic Studies at Brookings and Research Assistant Emily Parker found that:
The $2.85-billion program provided a short-term boost in vehicle sales; however, some of these sales were pulled forward (or borrowed) from sales that would have occurred in the future in the absence of the program. The net result was a negligible increase in GDP, shifting roughly $2 billion into the third quarter of 2009 from the subsequent two quarters.
The small increase in employment came at a far higher implied cost per job created ($1.4 million, or 0.7 jobs for each million dollars of program costs) than other fiscal stimulus programs, such as increasing unemployment aid, reducing employers’ and employees' payroll taxes, or allowing the expensing of investment costs.
The program resulted in a reduction of carbon dioxide emissions of only 8.58 to 28.28 million tons.
The program resulted in a small gasoline consumption reduction of 884 to 2,916 million gallons—equivalent to about only 2 to 8 days’ worth of current usage.
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.—Gayer and Parker brief