Title: A temporary VAT cut as unconventional fiscal policy: Evidence from Germany
Authors: Benjamin Born - Frankfurt School of Finance and Management gGmbH (Germany) [presenting]
Ruediger Bachmann - University of Notre Dame (United States)
Olga Goldfayn-Frank - Bundesbank (Germany)
Georgi Kocharkov - Bundesbank (Germany)
Ralph Luetticke - University College London (United Kingdom)
Michael Weber - Chicago Booth (United States)
Abstract: The impact of the temporary VAT cut, meant to stimulate the Covid-19 stricken German economy, during the second half of 2020 is evaluated. Survey data help us to overcome the identification problem by allowing us to classify households according to their subjective perception of this policy measure. We find that the temporary VAT cut led to a substantial relative increase in durable spending. For example, households with a high perceived pass-through into consumer prices spent about 40\% more than those with low or no perceived pass-through. Using scanner data, we also find that semi- and non-durable spending increased.