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

The government has chosen a preferential leverage to increase purchasing power: it announces tax cuts. Is the 10 billion euro decline expected in 2020 for households a good way to redistribute wealth? Because the least favored do not already pay taxes and do not benefit from this measure. “The bulk of this purchasing power is income from activity.Another important element is taxes.Thus mechanically, as soon as we lower taxes, it increases the purchasing power of households”explains Hélène Baudchon, an economist at BNP Paribas.

But will that boost growth? This would be the case if the French spend this extra money, that is, injected and spent. “This is because you have, for example, a rise of 100 euros in purchasing power, that it will necessarily result in a rise of 100 euros in household consumption”, according to the specialist. According to forecasts, the French will benefit from 850 euros more, mainly the middle classes.

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