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A temporary VAT cut as unconventional fiscal policy

Author

Listed:
  • Bachmann, Ruediger
  • Born, Benjamin
  • Goldfayn-Frank, Olga
  • Kocharkov, Georgi
  • Luetticke, Ralph
  • Weber, Michael

Abstract

We exploit Germany's temporary three-percentage-point VAT cut in the second half of 2020 to study the spending response to unconventional fiscal policy. We use survey and scanner data on household consumption expenditures and their perceived pass-through of the tax change into prices, and a RANK model to quantify the effects of this VAT policy. The survey and scanner data show that the temporary VAT reduction led to a relative increase in durable and, to a lesser extent, semidurable spending for individuals with high perceived pass-through. According to the RANK model, the VAT policy increased total aggregate consumption spending by 4.4 percent on impact.

Suggested Citation

  • Bachmann, Ruediger & Born, Benjamin & Goldfayn-Frank, Olga & Kocharkov, Georgi & Luetticke, Ralph & Weber, Michael, 2025. "A temporary VAT cut as unconventional fiscal policy," Discussion Papers 24/2025, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:328247
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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