IDEAS home Printed from https://ideas.repec.org/a/ucp/nattax/doi10.1086-714368.html
   My bibliography  Save this article

The Spending and Consumption Response to A VAT Rate Increase

Author

Listed:
  • David Cashin
  • Takashi Unayama

Abstract

This study estimates the effect of an increase in Japan’s value-added tax (VAT) rate on the timing of household expenditures and consumption, which do not necessarily coincide. The empirical analysis finds that spending on a wide range of durables and storables surged in the months prior to the tax rate increase, fell sharply upon implementation, but returned to their previous long-run levels within a few months. Nonstorable, nondurable expenditures increased slightly in the month prior to the tax rate increase but were otherwise unresponsive. A dynamic structural model of household consumption reveals that the observed spending responses were driven by stockpiling behavior, the insensitivity of durable and nondurable consumption to the tax rate increase, and strong complementarities between durables and nondurables. By mapping durable and storable expenditures into consumption, the model allows for a considerably more precise estimate of the intertemporal elasticity of substitution in consumption than the standard method, which focuses on nondurable spending only. The results, external validity checks, and marginal excess burden calculation suggest that anticipated changes in VAT rates have a large, though highly transitory, impact on household spending that generates miniscule efficiency costs.

Suggested Citation

  • David Cashin & Takashi Unayama, 2021. "The Spending and Consumption Response to A VAT Rate Increase," National Tax Journal, University of Chicago Press, vol. 74(2), pages 313-346.
  • Handle: RePEc:ucp:nattax:doi:10.1086/714368
    DOI: 10.1086/714368
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/714368
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: http://dx.doi.org/10.1086/714368
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: https://libkey.io/10.1086/714368?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Niizeki, Takeshi & Hori, Masahiro, 2023. "Inflation expectations and household expenditure: Evidence from pseudo-panel data in Japan," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 308-324.
    2. Phil Dean & Maclean Gaulin & Nathan Seegert & Mu-Jeung Yang, 2023. "The COVID-19 state sales tax windfall," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1408-1434, October.
    3. Kozo Ueda & Kota Watanabe & Tsutomu Watanabe, 2024. "Household Inventory, Temporary Sales, Price Indices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 217-251, February.
    4. KITAO Sagiri & YAMADA Tomoaki, 2023. "The Time Trend and Life-cycle Profiles of Consumption," Discussion papers 23036, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:nattax:doi:10.1086/714368. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/NTJ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.