Working Paper: NBER ID: w29442
Authors: Ruediger Bachmann; Benjamin Born; Olga Goldfayn-Frank; Georgi Kocharkov; Ralph Luetticke; Michael Weber
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: VAT cut; fiscal policy; consumer spending; Germany
JEL Codes: D12; E20; E21; E62; E65; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VAT cut (H25) | increase in durable spending (E20) |
| informed consumers (D18) | increase in durable purchases (L68) |
| VAT cut (H25) | increase in aggregate consumption spending (E20) |
| VAT cut (H25) | increase in semi-durable spending (D12) |
| VAT cut (H25) | increase in non-durable spending (D12) |
| consumer awareness (D18) | spending behavior (D12) |