Direct and indirect effects of stimulus policy: Evidence from Germany's scrappage program

Abstract: We evaluate the impact of Germany's 2009 scrappage program - the largest subsidy scheme to date aimed at promoting the replacement of old vehicles with new ones. Following the approach of Mian & Sufi (2012), we first provide evidence that the program did not merely stimulate demand through inter-temporal subsitution. In addition to pull-forward effects, the program generated additional vehicle purchases that would not have occurred in its absence. Leveraging novel, granular microdata covering the universe of all registered cars over nearly a decade, we then investigate the underlying mechanisms behind this finding. Using several complementary research designs that exploit age-based eligibility cutoffs, we identify multiple layers of peer effects: a higher share of program-eligible neighbors leads to additional car purchases - both in the short and medium term. We discuss the channels driving these indirect effects and quantify their implications for the program's overall efficacy.

Further information on the Economics Research Seminar can be found here. 

Autor: Responsible: Thomas Steger