Abstract: We documents how automobile scrappage
incentives similar to the "2009 Car Allowance Rebate System" (CARS) may
influence drivers' tastes in favor of fuel-efficient automobiles. Between
1994 and 2000 the market share of diesel automobiles doubled after two
scrappage programs sponsored by the Spanish government. We show that demand
for diesel automobiles was not driven only by better mileage; that gasoline
and diesel models became closer substitutes over time; and that automobile
manufacturers reduced their markups on gasoline automobiles as their demand
decreased. These programs simply accelerated a change of preference that was
already on its way when they were implemented.
