Scrappage by age: Cash for Clunkers matters!

This study assesses the effect of tax incentives on scrappage in periods of both economic expansion and crisis. Although such incentives are common during a recession, they may also be useful in renewing the vehicle fleet during other periods in order to reduce pollution and improve road safety. The present analysis is based on panel data covering the period from 2011 to 2017 in Spain, where several schemes were intermittently implemented. Using duration models, we specify the scrappage rate as a function of car age and other factors related to business cycle and transportation sector. On the base of this specification, we control for tax incentives. Our results confirm the relevant impact of car age and scrappage schemes on the scrappage rate and, consequently, on fleet age distribution. Therefore, cash for clunkers schemes may be of interest to policymakers as part of a strategy to reduce pollution and road accidents, regardless of the stage of the business cycle.

Scrappage by age: Cash for Clunkers matters! Articles