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Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France

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  • Youssef Benzarti
  • Dorian Carloni

Abstract

This paper evaluates the incidence of a large cut in value-added taxes (VATs) for French sit-down restaurants in 2009. In contrast to previous studies, which only focus on the price effects of VAT reforms, we estimate the effects of the VAT cut on four groups: workers, firm owners, consumers, and suppliers of material goods. Using a difference-in-differences strategy on firm-level data, we find that: firm owners pocketed more than 55 percent of the VAT cut; consumers, sellers of material goods, and employees shared the remaining windfall with consumers benefiting the least; and the employment effects were limited.

Suggested Citation

  • Youssef Benzarti & Dorian Carloni, 2019. "Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 38-63, February.
  • Handle: RePEc:aea:aejpol:v:11:y:2019:i:1:p:38-63
    Note: DOI: 10.1257/pol.20170504
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    Cited by:

    1. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2020. "Are temporary value-added tax reductions passed on to consumers? Evidence from Germany's stimulus," Papers 2008.08511, arXiv.org.
    2. Julio López Laborda & Carmen Marín González & Jorge Onrubia, 2018. "Tipo reducido, superreducido y exenciones en el IVA: una estimación de sus efectos recaudatorios y distributivos a partir de las encuestas de hogares," Studies on the Spanish Economy eee2018-23, FEDEA.
    3. Guillaume Bérard & Alain Trannoy, 2017. "The Impact of a Rise in the Real Estate Transfer Taxes on the French Housing Market," Working Papers halshs-01582528, HAL.
    4. Michael Funke & Raphael Terasa, 2020. "Will Germany's Temporary VAT Tax Rates Cut as Part of the Covid-19 Fiscal Stimulus Package Boost Consumption and Growth?," CESifo Working Paper Series 8765, CESifo.
    5. Angela Köppl & Simon Loretz & Ina Meyer & Margit Schratzenstaller, 2019. "Effekte eines ermäßigten Mehrwertsteuersatzes für Reparaturdienstleistungen," WIFO Studies, WIFO, number 61957, December.
    6. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2020. "The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail," ifo Working Paper Series 341, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Youssef Benzarti & Alisa Tazhitdinova, 2019. "Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms," NBER Working Papers 26195, National Bureau of Economic Research, Inc.
    8. James Alm & Kay Blaufus & Martin Fochmann & Erich Kirchler & Peter N. C. Mohr & Nina E. Olson & Benno Torgler, 2020. "Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(4), pages 396-428.
    9. Arkadiusz Bernal, 2018. "The Value Added Tax Incidence – the Case of the Book Market in CEE Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(2), pages 144-164, April.
    10. Youssef Benzarti & Dorian Carloni & Jarkko Harju & Tuomas Kosonen, 2020. "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes," Journal of Political Economy, University of Chicago Press, vol. 128(12), pages 4438-4474.
    11. Florian Dorn & Clemens Fuest & Florian Neumeier, 2020. "After the Great Economic Collapse: Germany’s Stimulus Package to Recover the Economy in Times of Covid-19," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(02), pages 38-46, July.
    12. Fetzer, Thiemo, 2020. "Subsidizing the spread of COVID19 : Evidence from the UK’s Eat-Out to-Help-Out scheme," The Warwick Economics Research Paper Series (TWERPS) 1310, University of Warwick, Department of Economics.
    13. Peter Morrow & Michael Smart & Artur Swistak, 2019. "VAT Compliance, Trade, and Institutions," CESifo Working Paper Series 7780, CESifo.
    14. Ván, Bálint & Olah, Daniel, 2018. "Szerepel-e az áfacsökkentés az étlapon? A 2016-2017-es magyarországi áfacsökkentések árhatásai [Does VAT cut appear on the menu? The consumer price impact of Hungarian VAT decreases of 2016-2017]," MPRA Paper 88165, University Library of Munich, Germany.
    15. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    16. Santiago Garriga & Dario Tortarolo, 2020. "Wage effects of employer-mediated transfers," Discussion Papers 2020-08, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    17. McQuinn, Kieran & O’Toole, Conor & Allen-Coghlan, Matthew & Economides, Philip, 2018. "Quarterly Economic Commentary, Winter 2018," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC, February.
    18. Harju, Jarkko & Kosonen, Tuomas & Skans, Oskar Nordström, 2018. "Firm types, price-setting strategies, and consumption-tax incidence," Journal of Public Economics, Elsevier, vol. 165(C), pages 48-72.
    19. Agustin Redonda, 2016. "Tax Expenditures and Sustainability. An Overview," Discussion Notes 1603, Council on Economic Policies.
    20. Kosonen, Tuomas & Harju, Jarkko & Nordström Skans, Oskar, 2015. "Firm types, price-setting strategies, and consumption-tax incidence," Working Papers 70, VATT Institute for Economic Research.
    21. Youssef Benzarti & Jarkko Harju, 2020. "Can Payroll Tax Cuts Help Firms During Recessions?," NBER Working Papers 27485, National Bureau of Economic Research, Inc.
    22. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2020. "Die Preiseffekte der Mehrwertsteuersenkung in deutschen Supermärkten: Eine Analyse für mehr als 60 000 Produkte," ifo Schnelldienst Digital, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(13), November.
    23. Florian Dorn & Clemens Fuest & Florian Neumeier, 2020. "Nach dem großen Einbruch: Ein Konjunkturprogramm zur Stützung und Erholung der Wirtschaft," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(07), pages 03-12, July.
    24. Takeshi Miyazaki, 2021. "Economies of Scope and Local Government Expenditure: Evidence from Creation of Specially Authorized Cities in Japan," Sustainability, MDPI, Open Access Journal, vol. 13(5), pages 1-22, March.
    25. Samina Sultan, 2020. "Who Carries the Burden of the Value-Added Tax? Evidence from Germany," CESifo Working Paper Series 8803, CESifo.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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