Evaluation of the impact of the reduced VAT rate of july 2009 on the price of production of the legal units of restoration

July 1, 2009, the VAT rate in the restaurant branch was lowered from 19.6 % to 5.5 %, except for take-away products. This study estimates the impact on the price of production, employment and wages of the panel comprising all the traditional and fast-food restaurants continuously active between 2004 and 2011. According to our estimates, before tax prices have risen faster in restaurants where the share of products affected by the reduction in VAT was initially higher, a result consistent with the view that the reduction in VAT rate has been only partially passed on to the customer. We also observe that employment and hourly wages rose faster in the legal units that are most affected, but that this increase took place later. For the traditional restaurants of our panel, our estimates suggest a significant impact of about + 10 500 jobs in late 2011. The case is less clear for the fast-food restaurants, where our estimates range from 0 to 5 100 jobs depending on the hypothesis we take. We also show a positive effect of the reduction in VAT on hourly wages: from 2010 on, in the traditional restaurants sector and from 2011 on, in the fast food sector.