For a grand French supply-side policy

Foreword

A positive image, a scapegoat. According to Elabe (June 2023), 74% of French people have a “good image” of companies, and 85% have an excellent image of entrepreneurs according to Odoxa for Capital (April 2025). Yet companies are blamed for a public deficit that peaks at nearly 150 billion euros in 2026. The authors ask the opposite question: what if supply-side policy has never gone far enough in France?

A misleading rate. Since 2022, the corporate income tax rate has been 25% in France and 25.8% in the United States, combining federal and local taxes. But a business leader signing a purchase order mainly wonders how much the investment will really cost after tax, and when the tax saving will be available. The answer also depends on depreciation rules.

A fragile victory. On the two indicators that measure this real cost, the EMTR and the EATR, published every year by the US Treasury for OECD countries but not calculated by France, our country was better placed than the United States in 2023. This advantage stems from the absence of property tax on machinery and from declining-balance depreciation that nobody ever conceived as a competitiveness instrument.

The American recipes, from the TCJA to the OBBBA

The TCJA, beyond the rate. Passed in December 2017, the Tax Cuts and Jobs Act cut the federal corporate income tax rate from 35% to 21%. Combined with local taxes, it gives a rate of 25.8% in 2023. For the authors, the real break lies elsewhere: bonus depreciation raised to 100%, which allows the entire cost of an investment to be deducted in the year of acquisition.

A measured effect. For 100,000 dollars of equipment, with a 25% corporate tax rate, the company saves 25,000 dollars of tax in the very first year. Across more than 120,000 companies, Zwick and Mahon showed that the mechanism had increased investment in eligible equipment by 10.4% between 2001 and 2004 and by 16.9% between 2008 and 2010. But the TCJA bonus was due to phase out from 2023 to 2027, at a rate of 20 points a year.

The OBBBA makes it permanent and extends it. Signed into law on 4 July 2025, the One Big Beautiful Bill Act makes 100% bonus depreciation permanent for assets placed in service after 20 January 2025. For the first time, it extends it to industrial production buildings, until then depreciated over 39 years, for construction begun between 19 January 2025 and 1 January 2029. The mechanism benefits any company that produces in the United States.

Continuity with Joe Biden. The Inflation Reduction Act and the CHIPS Act form a vast plan of tax exemptions for manufacturers, estimated by the Tax Foundation at nearly 1,500 to 1,700 billion euros over the Biden term. According to the authors, the tax base has become, just like the rate, a competitiveness instrument, to the detriment of European manufacturers.

The record of Trumpist supply-side policy

A modest macroeconomic effect. According to the IMF, US investment has grown beyond forecasts since 2017, but mainly because of aggregate demand. CEPII considers that the investment trajectory was not fundamentally changed.

A heavy budgetary cost. According to the Tax Foundation, the TCJA and the Biden measures are said to have cost nearly 3,700 billion euros between 2018 and 2025. The federal deficit rose by nearly 10 points relative to tax revenue during Donald Trump’s first term, before the health crisis. The authors draw a lesson: any supply-side policy must be accompanied by a proactive cut in public spending.

A clear microeconomic effect. The domestic investment of benefiting companies rose by 20% relative to others. Investment refocused on US territory: the openness rate of the economy fell from 27.15% in 2017 to nearly 25%. Accelerated depreciation generates more investment per dollar of tax expenditure than the other TCJA measures.

France, a positive but incomplete supply-side policy

A rate cut, and nothing else. From 2017 to 2022, the nominal corporate income tax rate fell from 33.3% to 25%. The French EATR fell from 41.5% in 2017 to 24.1% in 2023, and the EMTR from 37.2% to 20.4%, a 16.8-point drop against 7 for the United States. But no depreciation rule changed.

A policy less costly than claimed. According to Gabriel Gaspard, supply-side policy is said to have cost the State 929 billion euros from 2018 to 2025: the CICE converted into lower contributions, the corporate tax cut, the abolition of the CVAE, the replacement of the ISF by the IFI and the PFU. Set against the 21,000.5 billion euros of wealth produced over the period according to INSEE, it represents only 4.4 points of GDP.

A policy undermined by social spending. With public spending above 55% of GDP, 6 to 8 points above the OECD average, France has multiplied cheques: the “Yellow Vests” package, 100% Santé, the Ségur de la Santé, the energy price shield, the “Purchasing power” package. These measures amount to 450 billion euros over the period. For the authors, half of Emmanuel Macron’s supply-side policy was thus absorbed.

An involuntary advantage. On machinery, France has a particularly low EMTR thanks to the absence of property tax on equipment and a declining-balance depreciation coefficient of 2.25. On industrial buildings, depreciated over 20 to 50 years, the French EMTR remains high, at 31.6% in 2023. This is precisely where the OBBBA strikes.

The research tax credit and the forgotten over-depreciation scheme

A CIR concentrated on large groups. At 7.1 billion euros in 2023, the research tax credit is the largest tax expenditure in favour of companies. Large companies received 42% of the credits in 2019 while accounting for only 38% of gross corporate tax, according to the Conseil des prélèvements obligatoires. Yet one euro of credit induces 0.4 euro of additional R&D in a large company, 1 in a medium-sized one and 1.4 in a small one.

The 2015 precedent. From 15 April 2015 to 14 April 2017, the Macron law allowed an extra 40% of the value of productive investments to be deducted, a tax subsidy of about 13% at a corporate tax rate of 33.3%. At a cost of about 2.5 billion euros a year, sales of industrial robots rose by 20% in 2016, then by 30% in the first quarter of 2017.

An abandoned mechanism. The over-depreciation scheme expired without being renewed, just as the more politically visible cut in corporate tax was being prepared. Where France twice let a working tax-base mechanism expire, the United States made permanent what it had introduced on a temporary basis.

What the EMTR and the EATR measure

The real cost of investing. The effective marginal tax rate (EMTR), formalised by King and Fullerton in 1984, measures the share of the return on a marginal investment absorbed by taxation. It incorporates the nominal rate, depreciation rules, the real interest rate, inflation and taxes on assets. It governs the expansion decisions of existing companies.

The choice of location. The effective average tax rate (EATR), developed by Devereux and Griffith, measures the tax burden on a profitable project. It governs location decisions. Neither notion has an established equivalent in French.

Misleading results. From 2018 to 2023, the US EMTR remained stable, between 26 and 27%, despite the TCJA. On machinery, it fell from 24.2% to 14.2% in one year, before rising again to 17.5% in 2023 as the bonus phased out. On industrial buildings, the gap remained 7 points in France’s favour, 38.7% against 31.6% in 2023. On patents, the EMTR is about 29% in the United States against 9% in France.

The 2018 shock. The US EATR fell from 37.1% to 26.3% in one year. France only caught up in 2022 and 2023, with 24.1% against 26.3%, thanks to the cut in its nominal rate and the gradual phase-out of bonus depreciation.

What the OBBBA changes

On equipment, parity. According to the Tax Policy Center, making the bonus permanent cuts the US EMTR on equipment by 8.4 points in 2025. The United States thus reaches the level France already had in 2023, 9.1%, without a net advantage.

On industrial buildings, the reversal. The Tax Policy Center puts the fall in the US EMTR on eligible industrial buildings in 2025 at 20.2 points. France’s advantage, 31.6% against 38.7% in 2023, swings in favour of the United States for the first time. The authors point out that the two series rest on different methods: the orders of magnitude are indicative.

An overall shock. The OBBBA would cut the average EMTR of corporations by 6 points in 2025 and bring the EMTR on R&D to around 14%, still far from France’s 8.1%. The Congressional Research Service estimates that the user cost of capital falls by 2.3 points, for a 1.4-point rise in investment. For exporters, the FDDEI regime taxes export income at 14% from 2026. France has no equivalent.

Principle no. 1: introduce permanent 100% deductibility for equipment and industrial buildings

The proposal. Introduce into French tax law an immediate 100% deduction of the value of investments in industrial equipment in the year of acquisition, extended to production structures: industrial buildings, assembly and processing workshops.

Permanence, a condition of effectiveness. A temporary mechanism shifts the timing of investments already decided; a permanent mechanism durably changes the cost of capital. According to the Tax Policy Center, bonus depreciation, combined with two other policies, would raise US GDP by 0.3% in 2035, the capital stock by 0.9% and investment by 1.5%. According to the CBO, a 1% fall in the user cost of capital translates into a 0.7% rise in investment.

A tax deferral, not an exemption. Full deductibility brings forward the deduction of investments that would in any case be depreciated over fifteen or twenty years. The budgetary cost is high during the transition, then stabilises. In the United States, the Tax Policy Center puts the cost of bonus depreciation at 363 billion dollars over ten years, with a substantially lower recurring cost. For France, the authors state that the available data do not make it possible to quantify it.

Principle no. 2: unleash R&D energy by redeploying the research tax credit

A known reform. In September 2022, Philippe Aghion, Nicolas Chanut and Xavier Jaravel showed for the Conseil d’analyse économique that the CIR has twice as much effect in small and medium-sized enterprises as in intermediate-sized and very large companies. They proposed, at constant cost, abolishing the 5% rate above 100 million euros, or lowering the ceiling to 20 million to raise the rate from 30 to 42%.

A redeployment. The authors take up this budget-neutral reform and propose directing a fraction of it towards the immediate and full deductibility of principle no. 1.

Principle no. 3: make the EMTR and EATR official indicators of French supply-side policy

Measure in order to steer. Neither the Direction générale du Trésor, nor the Conseil des prélèvements obligatoires, nor INSEE publishes an indicator of the real cost of investment by asset type. A State that does not measure the EMTR can neither steer it, nor debate it, nor compare it with that of its competitors.

The proposal. Mandate the Direction générale du Trésor to publish every year a table of EMTRs and EATRs by asset type, using a method aligned with that of the US Treasury. At negligible cost, the debate would shift from the headline rate to the real cost of investing.

Conclusion

A decline disproved. Nine years after the TCJA, the data disprove the idea that France has fallen behind: in 2023, France’s overall EMTR was 20.4% against 27.2% in the United States, and its EATR 24.1% against 26.3%.

An advantage to consolidate. This advantage stems from structural assets never built as a competitiveness policy and from the cut in the nominal rate. With the OBBBA, the 7-point gap in France’s favour on industrial buildings should be reversed. For the authors, cutting the rate alone is no longer enough against a competitor that has understood that tax competition is played out on the real cost of investing.