A Temporary VAT Cut as Unconventional Fiscal Policy

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

No 16690, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We exploit the unexpected announcement of an immediate, temporary VAT cut in Germany in the second half of 2020 as a natural experiment to study the spending response to unconventional fiscal policy. We use survey and scanner data on households’ consumption expenditures and their perceived pass-through of the tax change into prices to quantify its effects. The temporary VAT cut led to a substantial relative increase in durable spending of 36% for individuals with a high perceived pass-through. Semi- and non-durable spending also increased. According to our preferred estimates, the VAT policy increased aggregate consumption spending by 34 billion Euros.

Keywords: Unconventional fiscal policy; Value added tax; Survey data; Expectations; Consumption; Household data (search for similar items in EconPapers)
JEL-codes: D12 E20 E21 E62 E65 H31 (search for similar items in EconPapers)
Date: 2021-11
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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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