France: It is important not to forget tax neutrality

The French government has decided to increase household incomes sharply (increased transfer payments to households, tax cut for households). However, it has maintained the constraint of reducing the fiscal deficit to 2% of GDP in 2020, which means that these increased government transfer payments to households must be offset, and there is talk about a corporate tax increase (an elimination of "tax loopholes"). This is where we have to point out the concept of tax neutrality: a zero-sum change in taxes (increase in certain taxes financing cuts in other taxes) has no effect on the economy in a long-term equilibrium . If, for example, a cut in households’ taxes is financed by an increase in corporate taxes, companies will at equilibrium reduce real wages, which will cancel out the effect of the cut in households’ taxes on their real income and on employment. So it is a mistake to put too much faith in "tax manipulation".