If the impact on tax revenues is the same, does it make any difference whether the government cuts taxes by (a) reducing marginal tax rates or (b) increasing the personal exemption allowance? Explain.
The “cash for clunkers” program of 2009 provided a subsidy of about $4,000 to those willing to buy a new car and have their old one destroyed. How did this policy affect the demand for new cars during the five months of the program? How did it affect the demand for new cars after it expired? How did it affect the price and availability of used cars? Do you think it would be a good idea to adopt a permanent program like this? Why or why not?
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