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The Economic Effects of a Tax Shift from Direct to Indirect Taxation in France

Author

Listed:
  • Francisco de Castro Fernández
  • Marion Perelle
  • Romanos Priftis

Abstract

This paper uses the European Commission's DSGE model QUEST to investigate the impact of alternative tax reforms shifting the tax burden away from labour or corporates, making the French tax system more growth friendly. These experiments consist in raising VAT and, simultaneously reducing either social security contributions borne by employers or corporate income taxes. These tax reforms overall entail positive and permanent effects on GDP and price competitiveness. Scenarios that imply cuts in social contributions borne by employers bring about more positive effects on employment, the trade balance and the general government deficit. By contrast, while lowering corporate taxes also gives rise to a positive GDP response, external price competitiveness and private investment, they negatively affect employment, the trade balance and the general government deficit.

Suggested Citation

  • Francisco de Castro Fernández & Marion Perelle & Romanos Priftis, 2018. "The Economic Effects of a Tax Shift from Direct to Indirect Taxation in France," European Economy - Discussion Papers 077, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:077
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    File URL: https://economy-finance.ec.europa.eu/publications/economic-effects-tax-shift-direct-indirect-taxation-france_en
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    Citations

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    Cited by:

    1. Strohner Ludwig & Berger Johannes & Thomas Tobias, 2019. "Sekt oder Selters? – Ökonomische Folgen der Reformzurückhaltung bei der Beendigung des Solidaritätszuschlags," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(4), pages 313-330, February.
    2. D'ANDRIA Diego & DEBACKER Jason & EVANS Richard W. & PYCROFT Jonathan & ZACHLOD-JELEC Magdalena, 2021. "Taxing income or consumption: macroeconomic and distributional effects for Italy," JRC Working Papers on Taxation & Structural Reforms 2021-13, Joint Research Centre.

    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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