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Food in France Stays Pricey Despite a VAT Cut

By now, French restaurantgoers were supposed to be enjoying cheaper ratatouille and boeuf bourguignon. After restaurant bankruptcies soared in 2008, the French government last July reduced the value-added tax on dining to 5.5 percent from 19.6 percent. In return, restaurateurs promised to lower prices by about 3 percent.

Government statisticians, though, say the typical restaurant tab has declined only 1.17 percent since the cut took effect. "Honestly, I haven't noticed any difference," says Albert Delbes, sipping coffee at Le Royal Trinité, a café near the Saint Lazare train station in Paris. Like many eateries, the café has trimmed prices on a handful of items—a plate of moules frites is now $17.20, down from $18.50—while leaving most unchanged. Especially for smaller restaurants, "it's very lower prices when the cost of ingredients keeps going up," says Gérard Guy, head of a national association of independent restaurateurs.

Restaurants have made good on another pledge. They promised to use some of the $3 billion in annual VAT savings to hire workers, raise salaries, and invest in job training. The industry has added more than 5,300 jobs since last summer even as French unemployment rose, and restaurant salaries are up an average 5 percent. Tourism Secretary Hervé Novelli, who negotiated the tax cut, said on May 5 he's generally satisfied with those results, despite the skimpy price reductions.

The bottom line: A tax cut for restaurants in France didn't do much to lower prices. It has helped create jobs and stem a rise in bankruptcies.

Matlack is a Paris correspondent for Bloomberg Businessweek.

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