This paper evaluates a novel form of fiscal stimulus: a temporary cut in the rate of Value Added Tax (VAT). In December 2008, the UK cut the standard rate of VAT by 2.5 percentage points for 13 months in an effort to stimulate spending. We estimate the effect of the cut on prices and spending...

We use direct evidence on credit constraints to study their importance for household consumption growth and for welfare. We distentangle the direct effect on consumption growth of a currently binding credit constraint from the indirect effect of a potentially binding credit constraint that...