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The Effect of Unconventional Fiscal Policy on Consumption -- New Evidence based on Transactional Data

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  • Koeniger, Winfried
  • Kress, Peter

Abstract

We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semi-durables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds.

Suggested Citation

  • Koeniger, Winfried & Kress, Peter, 2024. "The Effect of Unconventional Fiscal Policy on Consumption -- New Evidence based on Transactional Data," Economics Working Paper Series 2403, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2024:03
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    Keywords

    Consumption expenditure; Transactional data; Temporary VAT cut; Unconventional fiscal policy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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