A Temporary VAT Cut as Unconventional Fiscal Policy

The paper studies Germany’s temporary 3 percentage-point VAT cut from July 1 to December 31, 2020 (standard rate 19%→16%, reduced rate 7%→5%), combining two causal identification strategies with microdata and a HANK model to establish that intertemporal substitution drove a large spending response concentrated in durable goods.

Ex-ante approach (July 2020 BOP-HH survey, fielded immediately after the cut took effect): The survey distinguishes households informed about the January 2021 reversal (treated) from those who believed the cut was permanent (control). Treated households are approximately 10 percentage points more likely to increase durable purchases on the extensive margin. This is a lower bound on the intertemporal substitution effect because some “control” households likely learned about the reversal before the survey, attenuating the control group’s spending behavior toward that of the treated group.

Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings

This paper uses randomized control trials (RCTs) applied over time in multiple countries to study whether the economic environment — specifically the level of inflation — affects how agents learn from new information. The main finding is that as inflation rose in advanced economies, both households and firms became more attentive to and informed about publicly available news about inflation, causing them to respond less to exogenously provided information about inflation and monetary policy in the RCT treatments. When agents are already well-informed about the current inflation environment (because high inflation makes it salient), additional information provision moves their beliefs less — the marginal value of information is decreasing in prior attentiveness. Complementary evidence from Uruguay (persistently high inflation) and New Zealand (persistently low inflation) confirms the cross-sectional pattern: agents in high-inflation environments have stronger priors and respond less to information treatments. The results imply that central bank communication interventions are more effective during low-inflation periods when agents are less informed.

Michael Weber | Macro Paper Warehouse

A Temporary VAT Cut as Unconventional Fiscal Policy

Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings