Impact of the car scrapping scheme on consumer behaviour and aggregate consumption

Abstract

The American financial crisis, which started in 2007, triggered subsequently a global economic decline. To boost the decreasing national economies, many countries introduced various stipulating measures. The automotive industry has been among the numerous fields, which were affected by the decline. The proclaimed importance of this industry led to the introduction of a new economic tool to support the short-term consumption, usually referred to as the car scrapping scheme. This scheme stands for a special incentive to purchase a new car. Usually, the incentive is introduced in the form of a direct financial support or an ex-post tax relief, and is conditioned by scrapping the applicant's old car. The microeconomic analysis of consumer behaviour proved that the car scrapping scheme can mitigate the maximum decline of the aggregate consumption, thanks to the shift of the consumption line and of the map of the indifference curves. However, the car scrapping scheme has many other impacts, whose research should be elaborated.