The effect of unconventional fiscal policy on consumption : new evidence based on transactional data

Winfried Koeniger, Peter Kress

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.

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Year of publication:	October 2024
Authors:	Koeniger, Winfried ; Kress, Peter
Publisher:	Bonn, Germany : IZA - Institute of Labor Economics
Subject:	consumption expenditure \| transactional data \| temporary VAT cut \| unconventional fiscal policy \| Umsatzsteuer \| Sales tax \| Privater Konsum \| Private consumption \| Ankündigungseffekt \| Announcement effect \| Dauerhafte Konsumgüter \| Durable goods \| Schätzung \| Estimation \| Verbrauchsteuer \| Excise tax \| Inflationserwartung \| Inflation expectations \| Deutschland \| Germany \| Finanzpolitik \| Fiscal policy \| Großbritannien \| United Kingdom