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The Aggregate Consequences of Local Capital Taxation

Author

Listed:
  • Bergeaud, Antonin
  • Brouillette, Jean-Félix
  • de Lachapelle, Louis
  • Malgouyres, Clément

Abstract

We study the repeal of France's Taxe Professionnelle, a large local capital tax with rates set by nearly 35,000 municipalities. Combining administrative data with a dynamic spatial general equilibrium model disciplined by reduced-form investment responses, we estimate that the reform raises long-run real income per worker by 8% and welfare by 3\% in consumption-equivalent terms. Most gains come from the lower aggregate tax burden, which increases real wages everywhere. Equalizing tax rates alone has little aggregate effect, as activity shifts from large, low-tax, high-income hubs toward lower-wage locations, rather than raising productivity or capital deepening in the aggregate economy.

Suggested Citation

  • Bergeaud, Antonin & Brouillette, Jean-Félix & de Lachapelle, Louis & Malgouyres, Clément, 2026. "The Aggregate Consequences of Local Capital Taxation," CEPR Discussion Papers 21367, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21367
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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