The Effects of Pre-announced Consumption Tax Reforms on the Sales and Prices of Consumer Durables

Konferenzbeitrag

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2017: Alternative Geld- und Finanzarchitekturen - Session: Fiscal Policy ; No. G17-V3

Classification and Topics

• Classification: Wirtschaft ; Intertemporal Household Choice; Life Cycle Models and Saving ; Consumer Economics: Empirical Analysis ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Fiscal Policies and Behavior of Economic Agents: Firm ; Macroeconomics: Consumption; Saving; Wealth ; Fiscal Policy
• Subject: Tax Reform ; Fiscal Policy ; Consumption Tax ; Pass-Through ; Tax Incidence ; Durable Goods

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Büttner, Thiess ; Madzharova, Boryana
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel, Hamburg
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/168201
• Last update: 10.03.2025, 11:42 AM CET