Research / BFI Working PaperOct 27, 2021

A Temporary VAT Cut as Unconventional Fiscal Policy

Rüdiger Bachmann, Benjamin Born, Olga Goldfayn-Frank, Georgi Kocharkov, Ralph Luetticke, Michael Weber

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.

More Research From These Scholars

BFI Working Paper Feb 22, 2021

Fiscal Policy and Households’ Inflation Expectations: Evidence from a Randomized Control Trial

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
Topics:  Fiscal Studies
BFI Working Paper Aug 16, 2019

Managing Households’ Expectations with Simple Economic Policies

Francesco D’Acunto, Daniel Hoang, Michael Weber
Topics:  Fiscal Studies, Monetary Policy
BFI Working Paper Mar 25, 2021

The Effect of Macroeconomic Uncertainty on Household Spending

Olivier Coibion, Dimitris Georgarakos, Yuriy Gorodnichenko, Geoff Kenny, Michael Weber
Topics:  Uncategorized