Research

Abstract: Investment tax incentives are common and ambitious policies, yet we know surprisingly little about how they affect the pre-tax price of the capital goods they subsidize. We study this price effect in the case of a temporary subsidy that lowers the user cost of eligible industrial equipment by 13% in France between 2015 and 2017. Using firm-level and product-level data on production and prices, we estimate that the price of eligible capital goods sold by French suppliers increases by 2.6%, while their domestic sales rise by 10.9%. We draw three consequences for the effectiveness and incidence of investment tax incentives. First, the responses of capital flows that the literature measures in value may partly reflect a price effect, and therefore overstate the quantity response, by about 30% in our setting. Second, the pass-through rises from 20% on average to 30 to 40% where suppliers have market power or face capacity constraints, so that the same tax incentive stimulates investment substantially less in these markets. Even there, however, the pass-through remains incomplete, and real investment thus rises: investing firms grow, hire, and shift toward skilled labor, while their suppliers hire and invest in turn, propagating the stimulus along the supply chain. Third, we build a supply-chain incidence framework with imperfect competition and show that capital-goods suppliers capture at least 31% of the surplus going to firms. Within suppliers, the gains appear to accrue primarily to shareholders. 

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.