No. 250: Fiscal Stimulus and Consumption Spending Evidence from a €5 Billion Program

We use administrative vehicle registration data and household-level expenditure data to study the consumption response to the German Cash-for-Clunkers program. Eventstudy estimates suggest that the program generated a large and sharply timed increase in private new-car registrations in 2009. The response returned toward baseline after the program and was not followed by a full reversal, consistent with limited intertemporal substitution. Exploiting policy-induced eligibility criteria, we compare proxy-eligible households with comparison households and find little evidence that the program reduced spending on other durables, non-durables, or services, consistent with complementarity across consumption categories. A back-of-the-envelope calculation implies that each euro of program spending was associated with about 39-69 cents of additional non-car consumption.