Abstract: We investigate the pass-through of a temporary value-added tax (VAT) cut on selected food products to consumer prices. Exploiting a novel dataset of daily online prices, we find that the VAT cut was fully transmitted to consumer prices, persisted throughout the policy duration, and prices returned to the pre-implementation trend after reversal. We provide evidence for two mechanisms driving this result: the policy's salience to consumers in a high-inflation environment and the decline of producer prices when implemented. We estimate that the policy reduced the inflation rate by 0.68 percentage points on impact.

Presented at: Banco de Portugal, IIES, Nova SBE, ISEG, the FED Board, ECB, Universidade do Minho, Universidade do Porto, GEE/GPEARI, the Portuguese Tax Authority, the 17th PEJ Annual Meeting, the 12th LuBraMacro Meeting, SUDSWEC 2024, the 8th Swedish Conference in Economics, and the 3rd "Portuguese Around the World: Central Banking Edition" Conference

Media Coverage: Visão, ECO, Jornal de Negócios, Observador, Público, RTP, SIC (all in Portuguese).

Summary: Banco de Portugal's Economics in a Picture, SUERF Policy Brief, Twitter thread

Abstract: We argue that the relationship between wealth inequality and fiscal multipliers depends crucially on the type of fiscal experiment used as well as on the measure of the wealth distribution. We calibrate an incomplete-markets, overlapping generations model to different European economies and use Household Finance and Consumption Survey (HFCS) data to compare fiscal multipliers when models are calibrated to match the distribution of liquid vs. net wealth. We find a negative relationship between fiscal multipliers and wealth inequality when considering fiscal consolidation programs, in contrast to fiscal expansions experiments which are standard in the literature. The underlying mechanism relies on the relationship between the distribution of wealth and the share of credit constrained agents. We examine the role of households’ balance sheet compositions regarding asset liquidity and find that when calibrating the model to match liquid wealth, the relationship between wealth inequality and fiscal multipliers is much stronger. 

Abstract: How much can immigration help relieve the burden of aging on public finances? We build population projections for each Euro area country, to measure how aging impacts public finances. We combine them with information on taxes and benefits by age, gender, education level, and country of birth. We find that fiscal sustainability requires a permanent tax increase of 12.7 percent on average across countries. Further, we uncover the negative and convex relationship between the intensity of net migration and the fiscal burden of aging. Building walls is costly: shutting down migration would increase the necessary tax increase by 2.1 percentage points. In contrast, increasing migration would help close the fiscal gap, albeit with diminishing effects. Still, the potential of migration outweighs that of fertility. Higher fertility helps by increasing the share of workers in the population but only in the very long run. In the short run, it mostly brings additional costs with children.

Presented at: Nova SBE, U. Pompeu Fabra, Stockholm University, 15th PEJ meeting, 18th International Conference on Pension, Insurance and Saving, the 60th Public Choice Society meetings, the Lisbon Migration Economics Workshop, and the NBER Fertility and Declining Population Growth in High-Income Countries Conference