Effectiveness of car scrappage schemes: Counterfactual-based evidence on the Italian experience

Abstract

Car scrappage schemes are generally introduced to upgrade the car fleet to reduce environmental pressures from private transportation. The aim of this paper is to present a combined use of two counterfactual techniques (RDD and DiD) to quantify the impact of Italian car scrappage schemes of 2007–2009 on the deregistration of cars. The empirical assessment of the policy effectiveness is made possible by a discontinuity in the age of cars that were eligible for the subsidy. In the DiD model we also introduce a variable on ‘product innovation’ in the car market as a factor that determines scrappage timing. Results, based on detailed information on the car fleet and the deregistration of cars in Italy, suggest no impact for the 2007 and 2008 schemes and a large impact for the 2009 scheme, which was based on rather high incentives. Results are robust to both counterfactual approaches and to different tests.