Assessimg the Effects of Unconventional Fiscal Policy: Evidence from a Temporary VAT Rate Cut Using Credit Card Data
Type
working paper
Date Issued
2024
Author(s)
Abstract
We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) rate cut during 2020 in Germany, the largest euro area country in terms of GDP and population. Card expenditures in Austria serve as a comparison because spending and card-usage patterns of Austrian and German households were similar, and no analogous VAT cut was implemented in Austria. As predicted by consumption theory, we find that the temporary VAT cut increased expenditures more for durable goods, with a stronger effect towards the end of the cut. The annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the VAT cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semi-durables and non-durables did not change significantly during the cut, both economically and statistically. The estimates imply a consumption multiplier of 0.2 and a fall of fiscal revenues that is two thirds of the tax-revenue reduction in a counterfactual with constant expenditures.
Language
English
Keywords
Consumption expenditure
Transactional data
Temporary VAT cut
Unconventional fiscal policy
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Subject(s)
Eprints ID
270091
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Name
VAT_cut_KK_Sep13_2024.pdf
Size
687.99 KB
Format
Adobe PDF
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