Friday, 03 December, 2021

What impact does a tax cut have on purchasing power and growth?


Emmanuel Macron promised a tax cut to the French in 2020, but is this effective in boosting the purchasing power of the French?

What impact does a tax cut have on purchasing power and growth?

The government has chosen preferential leverage in order to increase purchasing power: it announces tax cuts. Is the drop of 10 billion euros expected in 2020 for households a good method for redistributing wealth? Because the less favored do not already pay taxes and do not benefit from this measure. “Most of this purchasing power is earned income. Another important element is taxes. So mechanically, as soon as we lower taxes, it increases the purchasing power of households ”, explains Hélène Baudchon, economist at BNP Paribas.

The French still have to spend

But will this boost growth? This would be the case if the French spend this additional money, that is to say injected and spent. “It is not because you have, for example, a 100 euros increase in purchasing power, that this will necessarily lead to a 100 euros increase in household consumption”, according to the specialist. According to forecasts, the French will benefit from 850 euros more, mainly the middle classes.