A Temporary VAT Cut as Unconventional Fiscal Policy

Rüdiger Bachmann (), Benjamin Born, Olga Goldfayn-Frank (), Georgi Kocharkov (), Ralph Luetticke () and Michael Weber

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We exploit Germany’s temporary three-percentage-point VAT cut in the second half of 2020 to study the spending response to unconventional fiscal policy. We use survey and scanner data on household consumption expenditures and their perceived pass-through of the tax change into prices, and a HANK model to quantify the effects of this VAT policy. The survey and scanner data show that the temporary VAT reduction led to a relative increase in durable and, to a lesser extent, semi-durable spending for individuals with high perceived pass-through. According to the HANK model, the VAT policy increased total aggregate consumption spending by 4.4 percent on impact.

Keywords: unconventional fiscal policy; value added tax; household survey data; expectations; consumption; durables; HANK model (search for similar items in EconPapers)
JEL-codes: D12 E20 E21 E62 E65 H31 (search for similar items in EconPapers)
Pages: 75
Date: 2026-02
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Related works:
Working Paper: A temporary VAT cut as unconventional fiscal policy (2025)
Working Paper: A Temporary VAT Cut as Unconventional Fiscal Policy (2021)
Working Paper: A Temporary VAT Cut as Unconventional Fiscal Policy (2021)
Working Paper: A Temporary VAT Cut as Unconventional Fiscal Policy (2021)
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