Temporary VAT Reduction during the Lockdown

نویسندگان

چکیده

This paper evaluates the temporary VAT reduction introduced by German government over third and fourth quarter of 2020 as most controversial part COVID-19 stimulus package. Critics argue that reductions are ineffective because limited pass-through measures to consumer prices in presence lockdown measures. Advocates emphasize positive effects on durables stress a can at least partly substitute for monetary policy response under ZLB. We build DSGE model which is capable address these channels. Our distinguishes between sectors directly indirectly affected lockdown. allows us trace economic spillovers rest economy differentiated impact both sectors. disaggregate consumption into non-durables financially constrained unconstrained households we allow imperfect prices. In general, if include durable investment channel find robust sizeable changes even pass-through. For specific situation Germany, analyze conjunction with lockdowns Q2 Q4. use non-linear solution techniques solve ZLB, forced savings constraint. short-term multiplier one, reduces medium term. Thus, an effective instrument but not efficient regard medium-term budget sustainability. Furthermore, show able mimic macroeconomic central bank reaction according Taylor rule case shock. However, compared has only small direct private investments.

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ژورنال

عنوان ژورنال: Social Science Research Network

سال: 2021

ISSN: ['1556-5068']

DOI: https://doi.org/10.2139/ssrn.3847765