The Efficiency and Equity of the Tax and Transfer System in France

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Efficiency and Equity of the Tax and Transfer System in France Abstract Taxes and cash transfers reduce income inequality more in France than elsewhere in the OECD, because of the large size of the flows involved. But the system is complex overall. Its effectiveness could be enhanced in many ways, for example so as to achieve the same amount of redistribution at lower cost. The French tax code should be simplified and changed less frequently. High statutory rates are coupled with a wide range of effective tax rates resulting from a multitude of tax expenditures. There is a need for base broadening combined with lower rates throughout the system, including VAT. The tax wedge on labour is high, except at the bottom of the wage distribution, which can reduce worker participation and job offers. Greater neutrality both across different capital asset classes but also within specific taxes, and shifting taxes from labour and capital inputs to environmental and property taxes would improve economic outcomes. Likewise, the system of social and family benefits should be simplified to enhance transparency and consistency. Eliminating schemes that let people leave the labour market early, abolishing the pension privileges of specific occupational groups and internalising the costs of survivors' pension benefits would increase fairness while at the same time generating savings. Better labour-market performance would result from increasing jobsearch incentives and shortening the parental leave allowance. Terms of use: Documents inJEL-Code: D300, H200, H300, H500, H550, H700, J200, J300.Keywords: taxation, cash transfers, income inequality, redistribution. Balázs Égert

Finance and Inclusive Growth

“…In practice, interest expenses on housing loans are often deductible at a higher rate than the one at which investment income (for instance from life insurance or pension funds) is taxed, although the deductible amount is often limited. In addition, because interest relief is typically restricted to loans that are taken for a house purchase, it creates a bias towards housing, which is amplified by the widespread exemption of owner-occupied housing services from taxable income (Denk, 2012;Égert, 2013). This bias can encourage over-investment in housing compared with other forms of capital.…”