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Tax Policy and Consumer Spending: Evidence from Japanese Fiscal Experiments

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  • K. Watanabe
  • T. Watanabe
  • T. Watanabe
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    Abstract

    This paper studies the extent to which the impact 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 that of permanent ones. We also find that more than 80 percent of Japanese consumers, including those who distinguish between temporary and permanent tax changes, respond to tax changes not at the timing of policy announcement but at the timing of implementation. We suggest an interpretation that some of them follow a near-rational decision rule.

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    Bibliographic Info

    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a376.

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    Date of creation: Jun 1999
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    Handle: RePEc:hit:hituec:a376

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    Related research

    Keywords: Consumption; Permanent income hypothesis; Taxation; Near-rationality;

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    Cited by:
    1. Watanabe, Katsunori & Watanabe, Takayuki & Watanabe, Tsutomu, 2001. "Tax policy and consumer spending: evidence from Japanese fiscal experiments," Journal of International Economics, Elsevier, vol. 53(2), pages 261-281, April.

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