Working Paper: NBER ID: w24244
Authors: Francesco Dacunto; Daniel Hoang; Michael Weber
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 provide preliminary evidence for the effectiveness of such policies using changes in value-added tax (VAT) and household survey data for Poland. We find households increased their inflation expectations and willingness to purchase durables before the increase in VAT. Future research has to ensure income, wealth effects, or intratemporal substitution channels cannot explain these results and ideally exploit exogenous variation in VAT in a fixed nominal interest rate environment.
Keywords: Unconventional fiscal policy; Consumption taxes; Inflation expectations; Household consumption
JEL Codes: D12; D84; E21; E31; E32; E52; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| announcement of future VAT increases (H25) | heightened inflation expectations (E31) |
| heightened inflation expectations (E31) | willingness to purchase durable goods (L68) |
| announcement of future VAT increases (H25) | willingness to purchase durable goods (L68) |