Incidence of a 'Social VAT' Reform: A French Scenario

17 Pages Posted: 19 Jan 2013

See all articles by Therese Rebiere

Therese Rebiere

Conservatoire National des Arts et Métiers; IZA Institute of Labor Economics

Abstract

This paper studies the fiscal incidence of a fiscal reform consisting of a reduction in employers' social insurance contributions financed by a tax based on the value added. In a closed economy with two sectors calibrated thanks to the French National Accounts, a "social VAT" leads to a rise in labor incomes which is usually higher than the rise of capital incomes. In case of perfect intersector mobility of production factors, a reduction in 1 percentage point of the social contributions leads to a rise in net labor incomes which is 0:51 to 0:66 percentage point higher than the rise of the interest rate. For a low intersector mobility the gains of workers, even though unequally distributed, remain higher than that of capitalists. In an open economy when the international capital mobility is sufficiently high, workers are more inclined to suffer from the reform.

Keywords: fiscal incidence, social contribution, payroll tax, tax on value added, social VAT

JEL Classification: J38, H22, H61

Suggested Citation

Rebiere, Therese, Incidence of a 'Social VAT' Reform: A French Scenario. IZA Discussion Paper No. 7127, Available at SSRN: https://ssrn.com/abstract=2203277 or http://dx.doi.org/10.2139/ssrn.2203277

Therese Rebiere (Contact Author)

Conservatoire National des Arts et Métiers ( email )

292 rue Saint Martin
Paris, 75003
France

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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