Wednesday, July 01, 2009

Le Big Mac

It may surprise you, but McDonald's is quite popular in France:
France is meanwhile emerging as McDonald's biggest source of revenue outside of the United States. Sales at the company's 1,115 outlets in France will rise this year to a record 3.35 billion euros, McDonald's has said.
Perhaps one reason is French tax policy:
McDonald's appealed to budget-conscious students, of course, but with France's high unemployment and sluggish economy, it attracted people of all ages. Pensioners, for instance, were among the chain's most loyal clients. The food at McDonald's was cheap, and it was made cheaper still because its restaurants were officially designated as takeout joints. The value-added tax on meals at such establishments was just 5.5 percent, versus the 19.6 percent levied at "gastronomic" restaurants. This gave McDonald's an even greater competitive advantage over brasseries, bistros, and caf├ęs.
Thus, a 10 euro lunch at McDonald's is a 12 euro lunch at a cafe. Lesson: tax rates should be flat and consistent to eliminate distortions, including in consumer choice.

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