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The effect of unconventional fiscal policy on consumption expenditure

D‘Acunto, Francesco; Hoang, Daniel; Weber, Michael

Abstract: Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European Union law, the German government announced in November 2005 an unexpected 3-percentage-point increase in value-added tax (VAT), effective in 2007. The shock increased households' inflation expectations during 2006 and actual in ation in 2007. Germans' willingness to purchase durables increased by 34% after the shock, compared to before and to matched households in other European countries not exposed to the VAT shock. Income, wealth effects, or intratemporal substitution cannot explain these results.

Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht
Jahr 2016
Sprache Englisch
Identifikator DOI(KIT): 10.5445/IR/1000062012
ISSN: 2190-9806
URN: urn:nbn:de:swb:90-620122
KITopen ID: 1000062012
Verlag KIT, Karlsruhe
Umfang 29 S.
Serie Working paper series in economics ; 94
Schlagworte Zero-Lower Bound, Fiscal and Monetary Policy, Durable Consumption, Survey Data, Household Consumption
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