Benjamin Born, Frankfurt School of Finance & Management

"A Temporary VAT Cut as Unconventional Fiscal Policy"


We exploit the temporary VAT cut in Germany in the second half of 2020 as a natural experiment to study the spending response to unconventional fiscal policy. We use survey and scanner data on households’ consumption expenditures and their perceived pass-through of the tax change into prices to quantify the effects of this VAT policy. The temporary VAT cut led to a relative increase in durable spending of 32 percent for individuals with a high perceived pass-through. Semi- and non-durable spending also increased. The VAT policy increased aggregate consumption spending by 23 billion Euros, or 1.4 percent.

Joint with Rüdiger Bachmann, Olga Goldfayn-Frank, Georgi Kocharkov, Ralph Luetticke, Michael Weber.

Contact person: Jeppe Druedahl