The CICE impact on prices: a twofold analysis on individual and sectoral data

The Competitiveness and Employment Tax Credit (CICE) is a major policy reducing labor cost, which could have been used by firms to decrease prices. In this study, we aim at measuring the impact of this cost shock on price dynamics both at the sectoral and at the firm levels. We respectively exploit between-sector and between-firm-within-sector comparisons in the tax credit exposure, namely the share of eligible labor cost. The sectoral analysis suggests that differential exposure to the CICE induces a price moderation in industrial sectors at the upper end of the production chain, and in services sectors close to final demand. However, this deflationary effect cannot be distinguished from a generalized cut in prices in these sectors. The hypothesis of a transmission through intermediate consumption via sectoral links is explored, as it could explain that the direct effect of the cost shock translates in fine into a common decrease in prices, uncorrelated with sectoral initial exposure. So as to circumvent transmission effects, the firm-level analysis is carried out sector by sector. In some sectors, prices moderation is indeed correlated with the tax-credit-induced reduction in cost. It is the case in some industrial sectors such as metallurgy, but also in services: we find a significant correlation in transport activities, specialized construction and administrative and support services activities. These sectors share a common feature: when classifying sectors along the share of eligible labor cost on total costs, they hold the top positions.