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

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 cutoff. 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.