Economics at your fingertips  

Measuring Intertemporal Substitution in Consumption: Evidence from a VAT Increase in Japan

David Cashin and Takashi Unayama ()
Additional contact information
David Cashin: Federal Reserve Board of Governors

The Review of Economics and Statistics, 2016, vol. 98, issue 2, 285-297

Abstract: We estimate the intertemporal elasticity of substitution in consumption (IES) using a preannounced increase in Japan’s consumption tax rate. Because this tax is highly comprehensive, the rate increase was announced prior to its implementation, and because other factors that affect the real interest rate were constant, the tax rate increase presents an ideal natural experiment to estimate the IES. A Japanese monthly household survey is exploited to accurately categorize nondurables, and our empirical specification addresses intratemporal substitution bias. We find that the IES is 0.21 and not significantly different from 0, but it is significantly less than 1.

Keywords: Intertemporal Substitution; Consumption; Japanese Consumption Tax; VAT (search for similar items in EconPapers)
JEL-codes: D12 D91 E21 E60 H24 H31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35) Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by Ann Olson ().

Page updated 2022-04-17
Handle: RePEc:tpr:restat:v:98:y:2016:i:2:p:285-297