Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France

In this paper we evaluate the incidence of a large cut in the value-added tax (VAT) for French sit-down restaurants. In contrast to previous studies that focus on prices only, we estimate its effect on four groups: workers, firm owners, consumers and suppliers of material goods. Using a difference-in-differences strategy on fi rm-level data we find that: (1) the effect on consumers was limited, (2) employees and sellers of material goods shared 25 and 16 percent of the total bene fit, and (3) the reform mostly bene fitted owners of sit-down restaurants, who pocketed 41 percent of the tax cut