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  1. Temporary VAT reduction during the lockdown
    evidence from Germany
    Author: Clemens, Marius; Röger, Werner
    Published: March 1, 2021
    Publisher:  Verein für Socialpolitik, [Köln]

    This paper evaluates the temporary VAT reduction invoked by the German government over the third and fourth quarter of 2020 as part of the COVID-19 stimulus package. There is considerable controversy. Critics argue that VAT reductions are ineffective... more

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    Resolving-System (kostenfrei)

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DSM 13
    Inter-library loan:
    No inter-library loan

     

    This paper evaluates the temporary VAT reduction invoked by the German government over the third and fourth quarter of 2020 as part of the COVID-19 stimulus package. There is considerable controversy. Critics argue that VAT reductions are ineffective in the presence of lockdown measures in place and because of limited pass-through of temporary measures into consumer prices. Advocates emphasize positive effects on durables and stress that these measures can at least partly substitute for a limited monetary policy response under the ZLB. This paper sets up a DSGE model which is capable to address these issues. Our model distinguishes between sectors directly and indirectly affected by the lockdown. This allows us to trace economic spillovers of lockdown measures to the rest of the economy and the differentiated impact of VAT measures on the two sectors. We disaggregate consumption into durables and non-durables for both financially constrained and unconstrained households and we allow for imperfect pass-through of VAT measures into consumer prices, by noticing that the standard price setting model with convex cost of adjustment, makes strong predictions about magnitude and speed in which retailers are adjusting consumer prices to VAT shocks. We analyse the impact of the VAT in conjunction with the two lockdown shocks in 2020 Q2 to Q4. We use non-linear solution techniques to solve the model in the presence of a ZLB and a lockdown constraint and we carefully take into account the information set available for the private sector in each quarter on current and future policy measures. We find sizeable effects of VAT measures on consumption (esp. durables) with a multiplier larger than one on GDP and can match well the main macroeconomic aggregates over that period.

     
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    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/242459
    Series: Jahrestagung 2021 / Verein für Socialpolitik ; 118
    Subjects: Fiscal Policy; DSGE Modelling; COVID-19 Lockdown; Tax Multiplier
    Scope: 1 Online-Ressource (circa 37 Seiten), Illustrationen
  2. Rising allowances, rising rates
    a Tinbergen rule for capital taxation
    Author: Clemens, Marius; Röger, Werner
    Published: 2021
    Publisher:  DIW Berlin, Deutsches Institut für Wirtschaftsforschung, Berlin

    The system of capital taxation consists of two instruments, namely a tax on profits and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a... more

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    Verlag (kostenfrei)
    Resolving-System (kostenfrei)

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DS 14
    Inter-library loan:
    No inter-library loan

     

    The system of capital taxation consists of two instruments, namely a tax on profits and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a fiscal net revenue target even in cases when a trade off prevails when each instrument is used individually. This is an application of the Tinbergen rule (Tinbergen 1952) to capital taxation. In the current context a fundamental requirement for this rule to work is that the two tax instruments imply different trade offs. As will be shown in the paper, depreciation allowances have a more favorable trade off between growth and net revenue in the long run compared to statutory profit tax rates. Thus, by increasing depreciation allowances and the statutory tax rate at the same time it is possible to both increase growth and fiscal space. In a model simulation calibrated to the German economy and tax system an increase of the tax depreciation rate for all investments from 10% to 25% leads to more than 2 percent GDP increase and more than 6 percent higher private investments in total. Whereas GDP and investment rise steadily over time, the government budget becomes negative in the short run. In the long run the sign of the fiscal budget effect is determined by the assumption about indexation of government consumption to GDP. However, according to the Tinbergen rule for capital taxation slight adjustments of the capital tax rate could balance out these deficits and generate additional fiscal space.

     
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    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/248489
    Series: Discussion papers / Deutsches Institut für Wirtschaftsforschung ; 1986
    Subjects: Fiscal Policy; Capital Allowance; Capital Tax
    Scope: 1 Online-Ressource (circa 25 Seiten), Illustrationen
  3. Temporary VAT reduction during the lockdown
    Author: Clemens, Marius; Röger, Werner
    Published: 2021
    Publisher:  DIW Berlin, German Institute for Economic Research, Berlin

    This paper evaluates the temporary VAT reduction introduced by the German government over the third and fourth quarter of 2020 as most controversial part of the COVID-19 stimulus package. Critics argue that VAT reductions are ineffective because of... more

    Access:
    Verlag (kostenfrei)
    Verlag (kostenfrei)
    Resolving-System (lizenzpflichtig)

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DS 14
    Inter-library loan:
    No inter-library loan

     

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

     
    Export to reference management software   RIS file
      BibTeX file
    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/234451
    Series: Discussion papers / Deutsches Institut für Wirtschaftsforschung ; 1944
    Subjects: Fiscal Policy; DSGE Modelling; COVID-19 Lockdown; Tax Multiplier
    Scope: 1 Online-Ressource (circa 37 Seiten), Illustrationen