Tax Policy and Consumer Spending: Evidence from Japanese Fiscal Experiments

K. Watanabe, T. Watanabe and T. Watanabe

Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper studies the extent to which the impact on consumer spending differs between temporary and permanent, as well as anticipated and unanticipated tax changes. To discriminate between them, we use institutional information such as legal distinction between temporary and permanent tax changes, as well as timing of policy announcement and implementation. We find that the impact of temporary changes is significantly smaller than that of permanent ones. We also find that more than 80 percent of Japanese consumers, including those who distinguish between temporary and permanent tax changes, respond to tax changes not at the timing of policy announcement but at the timing of implementation. We suggest an interpretation that some of them follow a near-rational decision rule.

Keywords: Consumption; Permanent income hypothesis; Taxation; Near-rationality (search for similar items in EconPapers)
JEL-codes: E21 H31 (search for similar items in EconPapers)
Date: 1999-06
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:a376

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