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The Effect of Unconventional Fiscal Policy on Consumption Expenditure / Francesco D'Acunto, Daniel Hoang, Michael Weber.
- Format:
- Book
- Author/Creator:
- D'Acunto, Francesco.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22563.
- NBER working paper series no. w22563
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- 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 inflation 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.
- Notes:
- Print version record
- August 2016.
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