A temporary VAT cut as unconventional fiscal policy

Ruediger Bachmann, Benjamin Born, Olga Goldfayn-Frank, Georgi Kocharkov, Ralph Luetticke and Michael Weber

No 24/2025, Discussion Papers from Deutsche Bundesbank

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 RANK 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, semidurable spending for individuals with high perceived pass-through. According to the RANK model, the VAT policy increased total aggregate consumption spending by 4.4 percent on impact.

Keywords: unconventional fiscal policy; value added tax; survey data; expectations; consumption; durables; RANK model (search for similar items in EconPapers)
JEL-codes: D12 E20 E21 E62 E65 R31 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dge and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:328247

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