The Effect of Unconventional Fiscal Policy on Consumption Expenditure

Francesco D’Acunto, Daniel Hoang and Michael Weber

No 22563, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European Union law, the German government announced in November 2005 an unexpected 3-percentage-point increase in value-added tax (VAT), effective in 2007. The shock increased households' inflation expectations during 2006 and actual inflation in 2007. Germans' willingness to purchase durables increased by 34% after the shock, compared to before and to matched households in other European countries not exposed to the VAT shock. Income, wealth effects, or intratemporal substitution cannot explain these results.

JEL-codes: D12 D84 D91 E21 E31 E32 E52 E65 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (61)

Published as Francesco D’Acunto & Daniel Hoang & Michael Weber, 2017. "The Effect of Unconventional Fiscal Policy on Consumption Expenditure," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(1), pages 09-11, April.

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Related works:
Journal Article: The Effect of Unconventional Fiscal Policy on Consumption Expenditure (2017)
Working Paper: The Effect of Unconventional Fiscal Policy on Consumption Expenditure (2016)
Working Paper: The effect of unconventional fiscal policy on consumption expenditure (2016)
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