Unconventional Fiscal Policy, Inflation Expectations, and Consumption Expenditure

70 Pages Posted: 8 Apr 2016

See all articles by Francesco D'Acunto

Francesco D'Acunto

Boston College

Daniel Hoang

Karlsruhe Institute of Technology (KIT)

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 5 versions of this paper

Date Written: March 3, 2016


Unconventional fiscal policies incentivize households to accelerate consumption by generating future consumer price ination, and offer an alternative to unconventional monetary policy (Correia et al. (2013)). We use a natural experiment to study the causal effect of unconventional fiscal policies on consumption expenditure via the inflation-expectations channel. The German administration unexpectedly announced in November 2005 a three-percentage-point increase in value-added tax (VAT) effective in 2007. This shock increased German households’ inflation expectations during 2006, as well as actual inflation in 2007. Matched households in other European countries serve as counterfactuals in a difference-in-differences identification design. German households’ willingness to purchase durable goods increased by 34% after the shock, compared to matched foreign households. Income or wealth effects do not appear to drive these results, and we do not find evidence of intratemporal substitution from non-durable to durable consumption.

Keywords: durable consumption, zero lower bound, fiscal and monetary policy, survey data

JEL Classification: D120, D840, D910, E210, E310, E320, E520, E650

Suggested Citation

D'Acunto, Francesco and Hoang, Daniel and Weber, Michael, Unconventional Fiscal Policy, Inflation Expectations, and Consumption Expenditure (March 3, 2016). CESifo Working Paper Series No. 5793. Available at SSRN: https://ssrn.com/abstract=2760238

Francesco D'Acunto

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Daniel Hoang

Karlsruhe Institute of Technology (KIT) ( email )


Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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