Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146990
Authors: 
D'Acunto, Francesco
Hoang, Daniel
Weber, Michael
Year of Publication: 
2016
Series/Report no.: 
Working Paper Series in Economics, Karlsruher Institut für Technologie (KIT) 94
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 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.
Subjects: 
Zero-Lower Bound
Fiscal and Monetary Policy
Durable Consumption
Survey Data
Household Consumption
JEL: 
D12
D84
D91
E21
E31
E32
E52
E65
Document Type: 
Working Paper

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