THE EFFECTS OF FISCAL STIMULUS: EVIDENCE FROM THE 2009 CASH FOR CLUNKERS PROGRAM

Oct 19, 2026

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Evaluating the 2009 Cash for Clunkers (CARS) fiscal stimulus, the study examines how city-level pre-exposure to qualifying “clunkers” shaped short- and medium-run auto purchases. Using cross-sectional variation across U.S. cities, it finds additional purchases of 370,000 cars during July–August 2009 but also strong reversal after the program expired. The net effect offsets much of the initial stimulus. No evidence links higher exposure to employment, house prices, or household default rates, indicating limited spillovers beyond vehicle demand.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages36

Reading Time1 h 31 min

AccessFree to download

Introduction

Program design and motivation

Research design and empirical strategy

Findings on vehicle purchases and reversal

Effects on broader economic outcomes

THE EFFECTS OF FISCAL STIMULUS: EVIDENCE FROM THE 2009 CASH FOR CLUNKERS PROGRAM* Atif Mian Amir Sufi We evaluate the impact of the 2009 Cash for Clunkers program on shortand medium-run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex ante exposure to the program as measured by the number of ‘‘clunkers’’ in the city as of summer 2008 . We ﬁnd that the program induced the purchase of an additional 370,000 cars in July and August 2009 . However, we ﬁnd strong evidence of reversal; high clunker counties bought fewer autos in the 10 months after the program expired, which offset most of the initial purchases. We ﬁnd no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program. JEL Codes: H20, E62 . I. Introduction Many governments embarked on strong ﬁscal stimulus programs in the aftermath of the global recession of 2008–2009 . Although these programs vary in design and magnitude, it is often extremely difﬁcult to estimate their impact on the economy. The main difﬁculty arises from the inability to construct a meaningful counterfactual scenario: What would have been the trajectory of economic variables in the absence of the stimulus program? We address this question in the context of the 2009 Cars Allowance Rebate System (CARS) program, commonly referred to as Cash for Clunkers. The program consisted of government payments to car dealers of $3,500 to $4,500 for every older, less fuel-efﬁcient vehicle (‘‘clunker’’) traded in by consumers who purchased a newer, more fuel-efﬁcient vehicle. The government destroyed the old cars in exchange for the dealer credits. *We thank Alan Bester, Robert Barro, Christopher Carroll, Jonathan Parker, Jeremy Stein, three anonymous referees, and seminar participants at the UC Berkeley Department of Economics and Haas School of Business, the NBER Monetary Economics and Public Economics meetings, the Federal Reserve Board, Stanford University, and the University of Chicago Booth School of Business for comments. We are grateful to the National Science Foundation, the Initiative on Global Markets at the University of Chicago Booth School of Business, and the Center for Research in Security Prices for funding. The results or views expressed in this study are those of the authors and do not reﬂect those of the providers of funding or data used in this analysis. ! The Author(s) 2012 . Published by Oxford University Press, on behalf of President and Fellows of Harvard College. All rights reserved. For Permissions, please email: [journals.permissions@oup.com](journals.permissions@oup.com). The Quarterly Journal of Economics (2012), 1107–1142 . doi:10 . 1093/qje/qjs024 . Advance Access publication on June 22, 2012 . 1108 QUARTERLY JOURNAL OF ECONOMICS Although the program was national in scope, its impact on a given city depended on the number of qualifying clunkers. Our research design forms treatment and control groups using cross-sectional variation across U.S. cities in exposure to the CARS program. We employ this research design to estimate the initial impact of the program and the degree to which the program shifted purchases forward from the near future. Why study CARS? First, the program is representative of a large number of ﬁscal stimulus programs that attempt to induce consumption or investment with cash subsidies. For example, similar programs were implemented in France, Italy, and Spain (Adda and Cooper 2000) . CARS also shares features with the ﬁrst-time homebuyer credit passed as part of the stimulus program, which is estimated to have cost $16 .2 billion. Second, the theoretical effect of stimulus programs such as CARS is contentious, making it an important empirical question. Leading economists have taken opposite positions on the expected success of such programs. Alan Blinder (2008) introduced the basic idea, calling it ‘‘the best stimulus idea you’ve never heard of

FAQs

How does the paper measure a city’s exposure to the Cash for Clunkers program?

Exposure is measured using the number of qualifying clunkers in a city as of summer 2008, scaled by monthly automobile purchases in 2004 (the first year of the data).

What impact does the program have on auto purchases during July and August 2009?

The program induces additional automobile purchases, totaling about 370,000 extra cars during July and August 2009 for cities with higher exposure.

Does higher program exposure affect employment, house prices, or household default rates?

The study finds no evidence of effects on employment, house prices, or household default rates in cities with higher exposure.

Oct 19, 2026

Upload by Hazel