Countercyclical fiscal policy , consumption tax cuts , firm-level data
Abstract:
The paper investigates the effects of temporary consumption tax cuts using firm-level data. As
part of its countercyclical measures implemented during the recent global economic crisis, Turkey
temporarily lowered consumption taxes on selected durables. Using data on the change of
sales of firms that benefited from this measure and of those that did not over different periods,
we perform a difference-in-difference analysis where we also control for various unobservable
effects including sector-specific shocks to address potential endogeneity. We find positive and
robust effects of consumption tax cuts on the change of firm sales which is consistent with theoretical
predictions.
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