Research

Abstract: Investment tax incentives are common and ambitious policies, yet we know surprisingly little about their consequences for the prices of the capital goods they subsidize. We study these consequences in the case of a temporary investment tax incentive in France, which mechanically reduced the user cost of capital by 13% between 2015 and 2017. Using firm and product-level data on production and prices, we show that the policy raised the pre-tax price of eligible capital goods by 2.6% on average. We draw three implications for the effectiveness and the incidence of investment tax incentives. First, measuring investment responses in value terms may overstate physical capital expansion, by a third in our context. Second, the price effects that mediate the policy are context-dependent, which questions the external validity of any given estimate: we find them concentrated in less competitive and in capacity-constrained product categories, and absent elsewhere. Third, capital producers captured at least 30% of the benefits of this investment tax incentive. 

Abstract:  This paper studies the introduction in 2022 in seven French industries of a type of experience rating mechanism for unemployment insurance (UI) contributions. This mechanism was specific to the US before this reform. Under the French scheme, the firms' new UI contribution rate is an increasing function of their former separation rate, defined as the ratio of separations (end of labor contracts) to employment. Firms whose separation rate is above the industry median face a surtax compared to the pre-reform UI contribution rate, while the others face a reduced rate. Using a difference-in-difference method within treated industries, the results show that firms decrease significantly both their hiring and separation rates, with effects varying notably by firm size. Only the first year after the introduction of the scheme is studied in this paper, results should therefore be considered as valid only in the short run. Results show no significant effect on employment. Consistent with these findings, firms increase the average duration of their employment contracts.