Paul L. Caron

Thursday, February 7, 2019

Who Really Benefits From Consumption Tax Cuts?

Youssef Benzarti (UC-Berkeley) & Dorian Carloni (Congressional Budget Office), Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France, 11 Am. Econ. J.: Econ. Pol'y 38 (2019):

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.

(Hat Tip: Ted Seto)

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