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Unconventional Fiscal Policy at Work

Author

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

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.

Suggested Citation

  • Rüdiger Bachmann & Benjamin Born & Olga Goldfayn-Frank & Georgi Kocharkov & Ralph Luetticke & Michael Weber, 2023. "Unconventional Fiscal Policy at Work," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 61-64, May.
    • Handle: RePEc:aea:apandp:v:113:y:2023:p:61-64
    DOI: 10.1257/pandp.20231036
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    More about this item

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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