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Has Germany’s temporary VAT rates cut as part of the COVID-19 fiscal stimulus boosted growth?

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  • Funke, Michael
  • Terasa, Raphael
Abstract
On 3 June 2020, the German government announced a EUR 130 billion fiscal stimulus package to stimulate market demand and jumpstart the economy in the wake of the COVID-19 pandemic lockdown in the spring of 2020. The most prominent measure of this package is an unconventional fiscal policy in the form of a temporary VAT rates cut for six months, from 1 July to 31 December 2020. Employing a dynamic stochastic general equilibrium (DSGE) framework, we study the efficiency of the VAT tax rates cut for ameliorating the consequences of the pandemic recession. The simulation of the calibrated DSGE model yields a tax policy-induced real GDP increase of about 0.3% points for 2020.

Suggested Citation

  • Funke, Michael & Terasa, Raphael, 2022. "Has Germany’s temporary VAT rates cut as part of the COVID-19 fiscal stimulus boosted growth?," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 450-473.
    • Handle: RePEc:eee:jpolmo:v:44:y:2022:i:2:p:450-473
    DOI: 10.1016/j.jpolmod.2022.03.008
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    Cited by:

    1. Victoria Baudisch & Matthias Neuenkirch, 2023. "Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction During the Covid-19 Pandemic," Research Papers in Economics 2023-04, University of Trier, Department of Economics.
    2. Oliver, Xisco & Encabo, Isabel & Padilha, Giovanni & Piccoli, Luca, 2022. "Reducing the regressivity of indirect taxation in Brazil through a personalized value-added tax," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 903-919.
    3. Daigo Nakata, 2023. "Emergency Economic Response and Evaluation in the COVID-19 Crisis," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 19(4), pages 1-25, November.
    4. Lapinskas, Arunas & Makhova, Larisa & Haikin, Mark & Troyanskaya, Marija & Mutalimov, Verdi, 2023. "Longevity of EU membership and VAT practices: Dependencies, Contradictions And Implications," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 630-643.
    5. Liu, Xiufen & Fang, Hongsheng & Zhao, Lexin & Xu, Wenli, 2023. "Do VAT cuts help stabilize employment? Evidence from China’s VAT rate reform," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 190-207.
    6. Michael Funke & Raphael Terasa, 2022. "Temporary Super Depreciation Allowances for Green and Digital Investments," CESifo Working Paper Series 9838, CESifo.

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    More about this item

    Keywords

    Fiscal policy; Value-added tax; DSGE model; COVID-19; Germany;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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