The Impact of Turning a Tax Reduction into a Tax Credit to Subsidise In-Home Services:An Evaluation of the 2007 Reform in France

Since 1991, users of in-home services have been eligible for a tax refund equal to 50 % of their spending on these services. The tax reduction was turned into a tax credit in 2007, but only for economically active households. This condition greatly limited the impact of the policy change: in 2008, the tax credit covered 1.9 % of the total €7.8 bn annual expenditure, against 34 % for the earlier tax reduction. We evaluate the impact of the reform using an exhaustive panel database of tax returns available for 2006-2008, and combining difference-in-differences and matching methods. Our results suggest that the reform induced an additional 86,000 to 120,000 households to use declared in-home services.