<p><p><p>This paper concerns the likely impact of a temporary VAT cut stimulus policy on consumer demand in the UK. It suggests that around 75 per cent of the VAT reduction will be passed on to consumers and that consumers will react by maintaining their expenditure levels and therefore increasing their demand for consumption goods. The uncertainty caused by the downturn makes this a more muted impact than we might have hoped, especially on the demand for durable goods. Nevertheless, it is a substantive impact. In general, the uncertainty caused by the recession will tend to reduce the impact of any stimulus package. It is also argued that synchronising the subsequent rise with the economic upturn is critical.</p></p></p>
Authors
Richard Blundell
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Journal article details
- Publisher
- Wiley Blackwell
- JEL
- H2, H3, E21
- Issue
- April 2009
Suggested citation
Blundell, R. (2009). 'Assessing the temporary VAT cut policy in the UK' (2009)
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