Tax reforms and Google searches: the case of Spanish VAT reforms during the great recession

Joaquín Artés,Ana Melissa Botello Mainieri,A Jesús Sánchez-Fuentes

doi:10.1007/s13209-019-00204-1

Joaquín Artés, Ana Melissa Botello Mainieri + Show 1 more

Open Access

https://doi.org/10.1007/s13209-019-00204-1

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Abstract

We propose a method to capture the effect of tax reforms on consumer’s readiness to buy using Google searches as a proxy. We use the Spanish 2010 and 2012 VAT reforms as a case of study. We use a regression discontinuity design taking advantage of the fact that the Spanish 2010 and 2012 VAT reforms had a sharp implementation date, which implies that from one day to another the tax rate for most goods was different, while other factors likely to influence consumer behaviour were similar on the days around the cut-off. We find a significant causal effect of the implementation of the reform on Google searches of durable goods, while we do not find any effect for non-durable goods. These results are in line with previous theoretical and empirical evidence according to which tax reforms cause consumers to modify more their readiness to buy durable goods. We also explore the effect of the reforms on readiness to buy specific goods such as movie tickets by taking advantage of a control group formed by similar leisure items that were unaffected by the 2012 reform.

Highlights

There is a consensus about consumers being quite sensitive to changes in the economic context in which they purchase goods
When a new tax increase is announced, consumers have an incentive to buy the goods for which the tax rate will be higher once the reform is in place and to delay the consumption of goods for which the tax rate will be lower, which changes overall spending in the economy [see, for example, Shapiro (1991), Feldstein (2002), and Hall (2011), among others]
We explore the usefulness of Google searches to analyse the effect of tax reforms on short-term intertemporal substitution of consumption

Summary

Introduction

There is a consensus about consumers being quite sensitive to changes in the economic context in which they purchase goods. The degree to which a tax reform causes some intertemporal substitution should depend on how elastic the consumption of certain goods is over time. In this regard, there is a difference between durable and non-durable goods, as the specific date in which consumers buy certain durable goods can be adjusted, while the purchase of some non-durable perishable items may not be delayed . A key feature of such reforms is that both were pre-announced months before their actual implementation date As several authors such as D’Acunto et al (2016) highlight, announcing a future VAT increase changes the intertemporal relative price of goods affected by the reform. We present a simple analytic illustration that captures the logic followed on those papers.

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