Working Paper: NBER ID: w7252
Authors: Katsunori Watanabe; Takayuki Watababe; Tsutomu Watanabe
Abstract: This paper studies the extent to which the impact of tax policy on consumer spending differs between temporary and permanent, as well as anticipated and unanticipated tax changes. To discriminate between them, we use institutional information such as legal distinction between temporary and permanent tax changes, as well as timing of policy announcement and implementation. We find that the impact of temporary changes is significantly smaller than the impact of permanent changes. We also find that more than 80 per cent of Japanese consumers, including those who distinguish between temporary and permanent tax changes, respond to tax changes at the time of their implementation and not at the time of a policy announcement. We suggest an interpretation that these consumers follow a near-rational decision rule.
Keywords: No keywords provided
JEL Codes: E21; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary tax changes (H26) | consumer spending (D12) |
| permanent tax changes (H29) | consumer spending (D12) |
| timing of tax changes (H26) | consumer spending (D12) |