The Household Expenditure Response to Pre-announced Consumption Tax Changes.

Consumption;Intertemporal Substitution;Value Added Tax;Consumption Tax;Fiscal Policy;Economics;Business;Economics

Cashin, David ByronHouse, Christopher L. ;

University of Michigan

关键词: Consumption;    Intertemporal Substitution;    Value Added Tax;    Consumption Tax;    Fiscal Policy;    Economics;    Business;    Economics;   

Others  :  https://deepblue.lib.umich.edu/bitstream/handle/2027.42/97900/cashin_1.pdf?sequence=1&isAllowed=y

瑞士|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

The studies included in this dissertation examine the household expenditure response to pre-announced increases in national consumption tax rates. Several countries have changed their consumption tax rate in recent years in order to generate new revenue or stimulate demand. Consequently, it is important to understand the impact of these tax changes on household expenditure. In addition, pre-announced consumption tax changes provide predictable variation in prices, and as such, present an ideal environment to measure intertemporal substitution behavior. The first and second chapters of this dissertation use the April 1997 increase in Japan’s Value Added Tax (VAT) rate along with household-level expenditure data to measure intertemporal substitution behavior. Chapter 1 provides an estimate of the intertemporal elasticity of substitution in consumption (IES). Using an appropriate categorization of non-durables and an empirical specification that is robust to intratemporal substitution between durables and non-durables, we find that the IES is 0.21 and not significantly different from zero. Chapter II builds on the work of Chapter I. First, it characterizes the sensitivity ofhousehold consumption and expenditure to the increase in Japan’s VAT. Second, the study utilizes information on the durable and storable expenditure responses to the VAT increase to yield a more precise estimate of the IES. Matching the time path of expenditures generated by a dynamic structural model of household consumption to empirical estimates of the intertemporal substitution response to the VAT increase, I find that expenditure is sensitive to a change in the future price level due to accelerated purchases of durables and stockpiling of storables. However, consumption is relatively insensitive.The IES is 0.13, and is precisely estimated. The final chapter uses durable and non-durable retail sales data to estimate the intertemporal substitution and income effects of three increases in New Zealand’s Goods and Services Tax (GST) rate. The intertemporal substitution estimates are consistent with the results from Japan. I also find evidence that uncompensated tax rate increases reduce retail sales in proportion to the price increase. The results presented in this dissertation suggest that policies that alter intertemporal prices will have a large, but short-lived impact on household expenditure.