Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/168201
Authors: 
Büttner, Thiess
Madzharova, Boryana
Year of Publication: 
2017
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2017: Alternative Geld- und Finanzarchitekturen - Session: Fiscal Policy G17-V3
Abstract: 
This paper utilizes a unique micro data set on consumer durables to study the effect of consumption tax reforms on the time path of consumption. The dataset reports the monthly sales of individual products and their consumer prices in 22 European countries, which enacted numerous consumption tax reforms in recent years. We implement a reduced form specification for sales that allows us to test theoretical predictions by a standard inter-temporal model of consumer choice under different assumptions about the pass-through of taxes into prices. Our identification strategy exploits the trading of individual products in multiple countries. The results document that changes in baseline consumption tax rates are fully and quickly shifted into consumer prices and exert very strong effects on the time path of consumption. We find that a one percentage point increase in consumption taxes causes an inter-temporal shift in consumption by 3 or more percent. In addition, purchases of durable goods increase temporarily by about 2 percent in the last month before a tax increase.
Subjects: 
Tax Reform
Fiscal Policy
Consumption Tax
Pass-Through
Tax Incidence
Durable Goods
JEL: 
D15
D12
H24
H32
E21
E62
Document Type: 
Conference Paper

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