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

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Series Details Number 77
Publication Date 08/03/2018
ISBN 978-92-79-77414-0
ISSN 2443-8022
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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.

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