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2013 Budget: Income Tax Reform

Brice Fabre, Jonathan Goupille, Quentin Lafféter, Antoine Bozio
October 2012
This paper examines the impact and redistributive consequences of the income tax reform set out in the 2013 Finance Bill.
Reference IPP Policy Brief No. 2

Quote this publication

Bozio, Antoine, Fabre, Brice, Goupille, Jonathan, Laffeter, Quentin. (October 2012). ‘2013 Budget: Income Tax Reform’. IPP Policy Brief, No. 2. Institut des politiques publiques (IPP).
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Presentation

Of the measures announced in the draft Finance Bill (PLF) for 2013, those relating to income tax (IR) have been the most hotly debated. After several decades of decline, marked by a proliferation of schemes providing exemptions from the standard income tax scale, the 2013 budget appears to be marking a change of direction. By announcing a substantial increase in income tax revenue and the reintegration of part of capital income into the standard tax scale, is the government in the process of initiating the ‘major tax reform’ mentioned during the presidential campaign?

This paper aims to analyse the impact of the measures announced regarding income tax and to discuss their effectiveness within the context of a broader reform of income taxation in France.

Key Results

The measures adopted will increase income tax revenue by 7 billion euros and focus a large proportion of the tax burden on the wealthiest French citizens. Nevertheless, the alignment of taxation on capital income with that on earned income is imperfect and even creates new distortions, which are likely to reduce actual tax revenue and limit the redistributive impact of these reforms.

  • The changes made to income tax since 2012 are expected to increase revenue from this tax by €7 billion in 2013, representing an 11 per cent tax increase.
  • The tax burden will fall mainly on those on very high incomes, but half of all taxpayers will see their tax bill rise.
  • Far from standardising and simplifying the tax scale, the reforms are likely to create new distortions…
  • …which could reduce actual tax revenue and weaken the redistributive impact of the reforms.

Method and Data

The approach involves simulating the announced tax changes on a representative sample of the French population. To isolate the impact of the reforms from effects linked to the economic climate, a ‘Counterfactual’ scenario simulating the state of the tax system that would have prevailed in the absence of reforms is constructed. The tax system incorporating the reforms is then compared with this Counterfactual.

In order to highlight the redistributive effects of taxation, it is necessary to agree on a measure of individuals’ ability to pay. Choosing either income taxable for income tax purposes or the reference taxable income – commonly used on tax assessment notices – poses a problem, as this measure depends entirely on the choices made regarding the tax base. A consistent solution, adopted in this paper, is to refer to economic income, a concept closely related to ‘national income’ in national accounts.

Last modified: July 21, 2026