Wednesday, August 5, 2009

The French Figure Out the Price Mechanism

I do admire the French. Sure they're a bit dirigiste and statist for my liking: but at least they understand the workings of the price mechanism, unlike our own glorious leaders. I'm in France this week, enjoying the weather and especially enjoying the cut in vat on restaurant meals introduced at the start of July. And we're not talking about tweaking the tax system here, we're talking about a ballsy cut from 19.6% to 5.5%. As a result, sales in restaurants have taken off.

So you make something cheaper and people buy more of it ... amazing. Or at least it must be to the folks in the Department of Finance who had the ingenious idea of increasing vat, but for some reason vat revenues actually fell ... go figure.

Maybe that's why the IMF expects France to have a 'good recession' - or at least one far less severe than our own. Suddenly 'dirigiste' and 'statist' doesn't seem so bad, or is that the sun getting to me ...?

1 comment:

  1. Assessing the causality of an increase in VAT and subsequent VAT revenues is confounded by the fact that we are talking about a market with dwindling consumer demand. One could argue that there would have been a greater fall in the revenue garnered by VAT if the rate stayed the same.

    À Bientôt


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