In 2010, the French corporation tax known as the local economic contribution or CET (contribution economique territoriale) replaced the business tax (TP - taxe professionnelle). This latter tax on production had come under frequent criticism because it hampered companies' competitiveness and productivity, particularly because the tax base included non-real estate assets. These assets are now excluded from the tax base. This article looks at the effects of that reform, which had a significant impact on companies, whose activity has increased as a result.
While the introduction of the CET reduced the marginal cost of investment in equipment, companies' capital intensity has not increased, the rise in employment having been more or less proportional to that of investment. But by harmonising the different tax rates, which had caused variations in the local cost of capital, the reform enabled companies to better allocate their production factors and improve their competitiveness.
Antonin Bergeaud, Edouard Jousselin and Clement Malgouyres
1 July 2022
Banque de France
https://publications.banque-france.fr/en/ten-years-business-tax-reform-how-has-it-affected-companies-behaviour
This work is published under POID and the CEP's Growth programme.