Unconventional Fiscal Policy at Work

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

AEA Papers and Proceedings, 2023, vol. 113, 61-64

Abstract: In an effort to stabilize the economy during the COVID-19 pandemic, the German government reduced value-added taxes (VAT) by 3 percentage points for a period of six months in the latter half of 2020. This measure resulted in a boost in aggregate consumer spending on both durable and semidurable goods during the six-month period, with spending decreasing once the VAT reduction was reversed. The effect of the temporary VAT cut on durable spending was stronger than on semidurable spending. Additionally, the temporary VAT cut also stabilized, and even slightly increased, inflation expectations in the second half of 2020.

JEL-codes: D84 E21 E31 E32 E62 H25 I12 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/pandp.20231036

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