Who Really Benefits From Consumption Tax Cuts? Evidence From a Large VAT Cut in France

Published in American Economic Journal: Economic Policy, vol. 11, no. 1, February 2019 (pp. 38–63)

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.