Unconventional Fiscal Policy at Work
AEA Papers and Proceedings
vol. 113,
May 2023
(pp. 61-64)
Abstract
In an effort to stabilize the economy during the COVID-19 pandemic, the German government reduced value-added taxes (VAT) by 3 percentage points for a period of six months in the latter half of 2020. This measure resulted in a boost in aggregate consumer spending on both durable and semidurable goods during the six-month period, with spending decreasing once the VAT reduction was reversed. The effect of the temporary VAT cut on durable spending was stronger than on semidurable spending. Additionally, the temporary VAT cut also stabilized, and even slightly increased, inflation expectations in the second half of 2020.Citation
Bachmann, Rüdiger, Benjamin Born, Olga Goldfayn-Frank, Georgi Kocharkov, Ralph Luetticke, and Michael Weber. 2023. "Unconventional Fiscal Policy at Work." AEA Papers and Proceedings, 113: 61-64. DOI: 10.1257/pandp.20231036Additional Materials
JEL Classification
- D84 Expectations; Speculations
- E21 Macroeconomics: Consumption; Saving; Wealth
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E62 Fiscal Policy
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- I12 Health Behavior