Consistent with the existing literature, we show that while the program significantly increased the number of vehicles sold during the two months of the program, this entire increase represented a shift from sales that would have occurred in the following seven to nine months. Thus, over a nine to eleven month period, the program had no impact on the number of vehicles sold.

Strikingly, however, we show that over a nine to eleven month period, including the two months of the program, Cash for Clunkers actually reduced the amount of money spent on new cars by two to four billion dollars. We attribute this to the fuel efficiency restrictions imposed on new vehicles that could be purchased with the subsidy, which induced households to buy smaller and less expensive vehicles. In short, by lowering the relative price of smaller,more fuel efficient vehicles, the program induced households to purchase vehicles that cost between $4,000 and $6,000 less than the vehicles they otherwise would have purchased.

Thus, while the stimulus program did increase revenues to the auto industry during the\two-month program, the environmental component of the bill actually lowered total new vehicle spending over less than a year by inducing people to buy more fuel efficient but less expensive cars. More generally, our findings highlight the difficulty of designing policies to achieve multiple goals, and suggest that in this particular case, environmental objectives undermined and even reversed the stimulus impact of the program.