New study shows COVID value-added tax cut significantly boosted private consumption

What happened

In summer 2020, the German federal government lowered value-added tax from 19% to 16% for half a year as part of its COVID economic stimulus package. The study found that lower-wealth households, as well as younger and middle-aged households, particularly benefited, regardless of their level of financial literacy. A new study, recently published in the journal Review of Economic Studies, operates with survey data, data on retail purchases and an economic model to show the extent to which this measure influenced private consumption.