Dining and Wining During the Pandemic? A Quasi-Experiment on Tax Cuts and Consumer Spending in Lithuania

September 8, 2023

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Format: Chicago

Serhan Cevik. Dining and Wining During the Pandemic? A Quasi-Experiment on Tax Cuts and Consumer Spending in Lithuania, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Could temporary tax cuts stimulate consumer spending? Sector-specific measures to the COVID-19 pandemic provides a quasi-experimental variation in consumption patterns to infer a causal effect of tax policy changes. Using a novel dataset of daily debit and credit card transactions, this paper investigates the effectiveness of Lithuania’s decision to cut the standard value-added tax (VAT) rate from 21 percent to 9 percent on restaurants and catering services during the pandemic in a difference-in-differences regression framework. I obtain robust evidence that the VAT reduction has had no statistically significant impact on consumer spending on restaurants and catering services, while other policy interventions such as mobility restrictions and vaccination have more pronounced effects. These results have important policy implications in terms of the expected stimulative effect of sector-specific VAT reductions and the effective design of fiscal policy interventions to counter the impact of pandemics during which mobility is highly constrained.

Subject: Consumer credit, Consumption, COVID-19, Fiscal policy, Health, Money, National accounts, Taxes, Value-added tax

Keywords: Baltics, Consumer credit, Consumer spending, Consumer spending category, Consumer spending in Lithuania, Consumption, COVID-19, Credit card transactions, Difference-in-differences, Europe, Lithuania, Novel dataset, Pandemic, Tax policy, Value-added tax, VAT reduction

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/188
Stock No:

WPIEA2023188
ISBN:

9798400252556
ISSN:

1018-5941

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