IPP Policy Brief n°2 - October 2012

French budget 2013: income tax reform

illustration-note-2-IPPIPP Policy Brief n°2

October 2012

Authors: Antoine Bozio, Brice Fabre, Jonathan Goupille and Quentin Lafféter

logo-pdf-min-2French Budget 2013: Income tax reform

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Summary:

Income tax reform is central to the French 2013 Budget. The goal is to increase tax revenues while restoring a “fiscal justice” judged to have been undermined in recent years. The guiding principle of the reform is to align capital income taxation with that imposed on labour income.
This note studies the redistributive implications of the announced tax reforms, by comparing the change in taxes imposed in 2012 and 2013. The new regulations will increase income tax receipts by seven billion euros and concentrate a large part of the tax burden on the most comfortably-off. Nevertheless, the alignment of taxation on capital and labour incomes is imperfect and may even create new distortions, which could reduce actual tax revenue and limit the redistributive impact of the reforms.

Key points:

  • The income tax reforms will increase taxation revenue by seven billion euros in 2013 – an increase in total tax receipts of 11 per cent.
  • This tax increase applies mainly to those on the highest incomes, but half of all tax-payers will see their taxes increase.
  • Far from simplifying and equalising the tax schedule, the reforms may create new distortions.
  • Those distortions risk reducing actual tax revenues and weakening the redistributive effects of the reforms.