Corporate taxation and macroeconomic dynamics in a monetary union: the French case

Using a post Keynesian stock-flow consistent (SFC) model with two countries in a monetary union (France and the rest of the euro area), we simulate different institutional configurations and highlight the relative inefficiency of public aid “à la française.” This result can be explained by the absence of any conditionality on the aid and by the context of financialization in which the tax cut is implemented. This observation leads us to question the reduction of public aid in a context of high public debt, the increase of which is limited by the institutional framework of the euro area. A second set of simulations, focusing on the increase in corporate taxes, reveals several results. If companies try to suppress wages in order to maintain profitability, an increase in levies on profits would have very high economic and social costs. To be effective, the introduction of differentiated taxation (higher levies on dividends paid) would have to be accompanied by a major institutional change, involving structural reforms aimed at reducing the importance of the financial sector and promoting productive, sustainable, and socially useful investment.