The Effect of Unconventional Fiscal Policy on Consumption Expenditure

77 Pages Posted: 2 Mar 2015 Last revised: 24 Jun 2017

See all articles by Francesco D'Acunto

Francesco D'Acunto

Georgetown University

Daniel Hoang

University of Hohenheim

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: June 22, 2017


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 which are, instead, consistent with an intertemporal-substitution channel.

Keywords: Zero-Lower Bound, Fiscal and Monetary Policy, Durable Consumption, Survey Data, Natural Experiments in Macroeconomics

JEL Classification: D12, D84, D91, E21, E31, E32, E52, E65

Suggested Citation

D'Acunto, Francesco and Hoang, Daniel and Weber, Michael, The Effect of Unconventional Fiscal Policy on Consumption Expenditure (June 22, 2017). Available at SSRN: or

Francesco D'Acunto

Georgetown University ( email )

Washington, DC 20057
United States

Daniel Hoang

University of Hohenheim

Fruwirthstr. 49
Stuttgart, 70599

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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