Arbeitspapier
Costly, but (relatively) ineffective? An assessment of Germany's temporary VAT rate reduction during the Covid-19 pandemic
We evaluate Germany's temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects.
- Language
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Englisch
- Bibliographic citation
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Series: Research Papers in Economics ; No. 4/23
- Classification
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Wirtschaft
Macroeconomics: Consumption; Saving; Wealth
Fiscal Policy
Studies of Particular Policy Episodes
Fiscal Policies and Behavior of Economic Agents: Household
- Subject
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Consumption
Covid-19
Synthetic Control
Temporary VAT Cut
Unconventional Fiscal Policy
- Event
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Geistige Schöpfung
- (who)
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Baudisch, Victoria
Neuenkirch, Matthias
- Event
-
Veröffentlichung
- (who)
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Universität Trier, Fachbereich IV - Volkswirtschaftslehre
- (where)
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Trier
- (when)
-
2023
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Baudisch, Victoria
- Neuenkirch, Matthias
- Universität Trier, Fachbereich IV - Volkswirtschaftslehre
Time of origin
- 2023
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