The car scrap premium proposal of Frank-Walter Steinmeier,
To stimulate the automotive industry by increasing sales of new cars, people receive a $3.000 payment to scrap their car, that is 9 years or older, in order to buy a new car (that fulfils the new emission standard Euro-4).
It is questionable, if the premium actually encourages people, to destroy their car and buy a new one.
On the one hand, it would help the decision of car drivers who have already thought about purchasing a new car. I would consider this number of people as relatively low.
On the other hand, in times of the financial crisis, it is unlikely that a car owner is willing to buy a new one. Other reasons could be that he cannot afford a new car, does not want to buy one because of its relatively high opportunity costs, or still likes his car that is 9 years or older. An additional $3.000 increases the budget of the individual, but the purchase of a new car might still be beyond this new budget line.
A new car has a fast depreciation in value, especially in its first year. This is why there is a tendency to buy used cars. Buying a new car also faces higher opportunity costs because it binds the capital and fewer interest can be realized.
In my opinion, it is a shame to destroy cars, just because they are nine years or older, in order to get the premium, even though they are still in proper running condition.
The premium causes an economic damage of the rest value of the car plus the costs of search to find a new one.
Would it not be the same to blast houses in order to stimulate the building industry?
By replacing old cars for newer, more fuel efficient ones, the premium is supposed to contribute to the reduction of CO2-emission and therefore to the protection of the environment.
However, I do not consider the solution using a premium as very effective and do not think it could result in a multiplier effect.
To achieve an ongoing effect, it is necessary to put incentives on the people’s behavior. By charging car drivers with a CO2-emission price that is integrated in the petroleum tax, the individual can choose how much he is willing to pay more for the additional pollution.
Without negotiating with all other continents, I do not see a significant effect of reducing the CO2-emission with the premium. There is no local solution for a global problem like this.
http://www.tagesschau.de/wirtschaft/konjunkturfoerderung100.html
2 comments:
Economic analysis generally relies on looking at the margin. I think your essay doesn't rely on thinking at the margin enough. If you think about the price at the margin, I think we can expect an increase in the number of new autos purchased. I don't know whether to expect a relatively large increase or a relatively small increase, but I do expect an increase.
Well, Professor Eubanks, I agree that in total the premium would lead to an increase in car sales because it reflects a cheaper price. I did not question that because I do know that it helped Germany to increase their car sales by 21%.
All I am saying is that it might be ethically questionable to destroy value like this.
Scrapping should not be the solution. It would be a better wat to save the car parts at junkyards in order to repair older cars which are still in good running condition.
I also question that customers would receive additional value or utility in the amount that they are paying more for a new car.
Wouldn't it be just like asking the consumers to keep their old car and give the difference of the additional value and the high costs of a new car directly to the producers???
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