Template-Type: ReDIF-Paper 1.0
Title: A Temporary VAT Cut as Unconventional Fiscal Policy
Author-Name: Rüdiger Bachmann
Author-Email: rudib@umich.edu
Author-Name: Benjamin Born
Author-Email: b.born@uni-bonn.de
Author-Name: Olga Goldfayn-Frank
Author-Email: olga.goldfayn-frank@bundesbank.de
Author-Name: Georgi Kocharkov
Author-Email: georgi.kocharkov@bundesbank.de
Author-Name: Ralph Luetticke
Author-Email: ralph.luetticke@uni-tuebingen.de
Author-Name: Michael Weber
Author-Email: weber366@purdue.edu

  
Classification-JEL:  D12, E20, E21, E62, E65, H31
Keywords: unconventional fiscal policy, value added tax, household survey data,
expectations, consumption, durables, HANK model


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 HANK 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, semi-durable spending for
individuals with high perceived pass-through. According to the HANK model, the VAT
policy increased total aggregate consumption spending by 4.4 percent on impact.

Note: 
Length: 75
Creation-Date: 2026-02
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp728
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_728