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In 2009, Congress enacted a tax credit to stimulate demand for new autos. After reviewing the evidence, we came up with the following assessment of the
- These subsidies do not create new demand. They only shift demand forward from future years.
- These subsidies are a continuation of an unwise strategy to make sales to unqualified buyers.
- Eventually the auto companies will have to size their operations to match unsubsidized demand.
In “The Effect of Fiscal Stimulus: Evidence from the 2009 ‘Cash for Clunkers’ Program,” Atif Mian of the
University of California Berkeley and Amir Sufi of the University of Chicago both came to the same conclusion.
“…almost all of the additional purchases under the program were pulled forward from the very
near future; the effect of the program on auto purchases is almost completely reversed by as early
as March 2010 – only seven months after the program ended.”