Consumption expenditure Special survey of consumption to evaluate the economic stimulus package
Household surveys commissioned by the Federal Ministry of Finance were conducted every month from August to December 2020. The aim was to determine what effect the measures taken under the economic stimulus package 2020 had on households. The focus was on whether and how the temporary reduction of value added tax (VAT) and the child bonus influenced the consumption behaviour of households.
Effect of the VAT reduction
The economic stimulus package of the Federal Government included, among others, the temporary reduction of the VAT rates from 19% to 16% and from 7% to 5%. The reduced rates applied from 1 July to 31 December 2020.
A growing number of households used the VAT reduction for consumption purposes
In August 2020 nearly one household out of seven in Germany (15%) brought major purchases forward or intended to do so because of the temporary VAT reduction. This figure rose to one household in five (20%) in December 2020. The temporary VAT reduction also provided a further incentive to make unplanned purchases. In August 2020, the VAT cut was an additional incentive for 13% of households. Their percentage rose to 16% until December 2020. In all, one household out of five (20%) brought major purchased forward or made additional purchases in August 2020 because of the VAT reduction. That percentage rose to 25% until December 2020. This means that the number of households which brought forward or made additional purchases to profit from the VAT cut increased over time.
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Explanation of the diagram: Question „Will you bring planned major purchases forward because of the temporary VAT reduction or have you brought such purchases forward already?“
Especially households with children and higher-income households took the chance to profit from the VAT cut
The effect of the VAT reduction was particularly noticeable in households with at least one child under 18 years. In August 2020, one household in four (25%) with at least one child under the age of 18 brought major purchases forward or planned to do so because of the VAT reduction. That percentage increased slightly to 29% until December 2020. This applied to one out of eight households without children (12%) in August 2020. That percentage rose to 17% until December 2020. There are comparable though slightly lower percentages for additional and unplanned purchases. Roughly one household in four (21% to 26%) with at least one child under 18 years made unplanned purchases in August to December 2020. The number of households without children which made unplanned purchases was only about half as high (11% to 14%). In all, roughly one household out of three (32% to 35%) with at least one child below the age of 18 made additional purchases and/or brought planned purchases forward because of the VAT reduction. So did approximately one household out of five without children under 18 years (17% to 22%) in the same period.
Such VAT reduction effects were more noticeable in households with higher income than in households with lower income. From August to December 2020, 10% to 13% of households with a monthly household net income of less than 2,000 euros brought major purchases forward because of the VAT reduction. 22% of households with a monthly income of more than 5,000 euros did the same in August 2020. Their percentage rose to 34% until December 2020. There was a similar result for additional purchases. While the VAT reduction provided an additional incentive for roughly one household in ten (9% to 13%) with a monthly household net income of less than 2,000 euros, this was the case for twice as many households with an income of more than 5,000 euros (15% to 24%). In all, roughly one household out of six (14% to 17%) with a monthly household net income of less than 2,000 euros made additional purchases and/or brought planned purchases forward because of the VAT reduction. 29% of households with a monthly income of more than 5,000 did the same in August 2020. That percentage rose to 40% until December 2020.
Please note that the survey considered total household income instead of per capita income. This means that the group of households with children and that with a higher income overlap to some extent as multi-person households, on average, have a higher income. The survey does not assess the actual effect which the VAT reduction had on households financially, for example by enhancing their purchasing power through price decreases.
VAT reduction primarily used to bring forward purchases of electrical appliances and furnishings
Roughly half of the households (47% to 52%) which brought forward planned purchases in the period from August to December bought electrical appliances such as TV sets, fridges and laptops. A similarly high percentage (43% to 50%) brought forward purchases of furnishings and household articles such as furniture, lamps and tableware. 23% to 30% brought forward purchases of vehicles (for instance cars, bicycles, motorcycles) and 26% to 30% purchases of clothing and footwear. Multiple responses were possible here.
Effect of the child bonus
The economic stimulus package of the Federal Government included, among others, the payment of a child bonus of 300 euros per child. Generally, that money was paid out in two instalments to each household with a child entitled to children’s allowance: 200 euros in September and 100 euros in October. The bonus was not offset against social benefits but has to be compared, like children's allowances paid, with the effect of tax-free amounts for children under the fiscal equalisation of benefits for families to find the option most favourable for the taxpayer.
More than half of the households used the child bonus for consumption purposes, especially lower-income households
In August 2020, that is before the child bonus was paid out, slightly more than one out of two households entitled to children’s allowance (55%) intended to spend the child bonus or part of it for consumption purposes. That percentage amounted to 60% in December 2020. Consumption purposes comprise the purchase of durable consumer goods (for example clothing and footwear, furnishings and household articles, electrical appliances, vehicles), expenditure on food and beverages and on entrance fees and services provided outside the home for leisure, culture and sports (including going to restaurants and pubs or on vacation).
In the period from August to December 2020, up to two thirds (57% - 69%) of the households entitled to children’s allowance with a monthly household net income of less than 2,000 euros planned to spend the child bonus entirely or partly for consumption purposes. The percentage of households with an income of more than 5,000 euros planning to do that was smaller (46% to 55%).
Another frequently mentioned option was saving the child bonus but this purpose lost in importance in the course of time. While roughly six in ten households (61%) planned to save the entire child bonus or part of it in August 2020, that is before the child bonus was paid out, only half of the households (53% to 54%) intended to do so from October 2020 when the second rate was paid out. The child bonus is not offset against social benefits but compared with the effect of tax-free amounts for children in the income tax assessment from a specific level of income. Between August and December 2020, one in four households entitled to children’s allowance (24% to 27%) assumed that its child bonus would be offset completely. This may have been the reason why households put the child bonus away (at first) and did not use it for consumption purposes.
In addition to consumption and savings purposes, roughly one household in five (16% to 21%) intended to use the entire child bonus or part of it to repay debts. One fourth of households (25% to 28%) used the child bonus for other purposes.
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Question: What will/did you use the child bonus for? - Please distribute 100 points among the options listed. Assign 100 points to an option to state that you used/intend to use the entire child bonus for that purpose and assign 0 points to indicate that you have not used/will not use any of the money for that purpose. You may also distribute the points among the relevant options.
Child bonus primarily used to purchase durable consumer goods
Every month 71% to 79% of the households which used the entire child bonus or part of it for consumption purposes purchased durable consumer goods. In roughly half of the cases where, for instance, clothing, furnishings or electrical appliances were bought, these purchases had not been planned for that period. This means that purchases of durable consumer goods were brought forward and unplanned additional purchases made because of the child bonus (possibly in combination with the temporary VAT reduction).
52% to 63% of the households which used the child bonus for consumption purposes bought food and beverages. Approximately half of the households (49% to 51%) intended to use the child bonus to pay entrance fees and buy services provided outside the home in the field of leisure, culture and sports in August and September 2020. That percentage went down markedly from October 2020 to only 34% in December 2020. This was probably due to the increasing restrictions on account of the coronavirus pandemic.
Methodological notes on the special survey
The above results were taken from a special survey of consumption conducted by the Federal Statistical Office on behalf of the Federal Ministry of Finance. The aim was to determine what effect the measures taken under the economic stimulus package 2020 had on households. The focus was on whether and how the temporary reduction of value added tax (VAT) and the child bonus influenced the consumption behaviour of households.
An external institute conducted the monthly online surveys in the form of five waves from August to December 2020. Each month, roughly 4,200 people provided information on their households on a voluntary basis. Only households that were entitled to children’s allowance in 2020 answered the questions relating to the child bonus.
The surveys used quota samples of representative households, the respondents were aged 18 to 74 years. The microcensus 2019 served as a reference for the quotas and for extrapolation purposes. There are both sampling and non-sampling errors with this type of survey. Generally, it has to be noted that quota samples involve distortions of variables which are not part of the quotas and the extrapolation frame.
All data, including income information, are based on respondents’ self-assessments. Respondents were asked how they intended to use this (additional) disposable household income. What has actually been done with the money may differ from what respondents said they intended to do with it, and it may change in the course of time. This refers to the questions about both the VAT reduction and the child bonus. To what extent the measures of the economic stimulus package actually enhanced private consumption or reduced the financial burden on households can therefore not be directly inferred form the survey. It does not provide information on the amounts spent or saved under the measures of the economic stimulus package, either.
The Federal Statistical Office (Destatis) conducted the survey on the basis of Section 3 (1) no. 16 of the Federal Statistics Act (BStatG).
Downloads
Selected results of the special consumption survey to evaluate the economic stimulus package (only in German):
- Special consumption survey to evaluate the economic stimulus package - August 2020
- Special consumption survey to evaluate the economic stimulus package - September 2020
- Special consumption survey to evaluate the economic stimulus package - Oktober 2020
- Special consumption survey to evaluate the economic stimulus package - November 2020
- Special consumption survey to evaluate the economic stimulus package - Dezember 2020
The economic stimulus package of the Federal Government included, among others, the temporary reduction of the VAT rates from 19% to 16% and from 7% to 5%. The reduced rates applied from 1 July to 31 December 2020.