Using previously unpublished administrative data linking individuals’ income tax returns to firms’ tax returns in France in 2016, the authors measure the effective direct tax rates for households at the top of the income distribution. This new measure, which differs from the traditional reference taxable income in that it includes, in particular, the undistributed profits of companies owned by these households, leads them to question the extent to which the tax system is actually progressive.
What taxes do billionaires pay?
This paper aims to measure the incomes of the wealthiest tax households as comprehensively as possible, and provides an estimate of the overall tax rate for these households based on their position on the income scale.
Reference IPP Policy Brief No. 92
Presentation
Key Results
- In 2016, the effective tax rate for French households appeared to be progressive up to high income levels. It reached 46 per cent for households in the top 0.1 per cent.
- The effective tax rate becomes regressive at the top of the distribution, falling from 46 per cent for the richest 0.1 per cent to 26 per cent for the richest 0.0002 per cent.
- For ‘billionaires’, income tax and the wealth tax (ISF) account for only a negligible fraction of their total income, whilst corporation tax is the main tax they pay.
- The lower tax rate on the highest incomes is due to the fact that the tax rate on corporate profits is lower than that on personal income.
Method and Data
This study stands out for its use of exceptional data, made available to researchers for the first time thanks to an unprecedented joint effort by teams from the Directorate-General for Public Finances (DGFiP), the Centre for Secure Data Access (CASD) and The Institut des politiques publiques (IPP). This database was developed as part of the evaluation of the capital taxation reform (Bach et al., 2021).
> Download underlying data – including average incomes by income fractile: Figure 1a – Figure 1b
Construction of the database
The work involved constructing a matching table to determine the personal tax situation for 2016, in respect of the ISF-IFI and income tax (IR), for the reference individual shareholders of French firms. The data were therefore drawn from individual income tax returns (POTE files), wealth tax returns (ISF-IFI files), Form 2033/59 from corporate tax returns, which identify the key shareholders of each firm (holding at least 10 per cent of the share capital), supplemented by shareholding data from the Orbis database and data on legal representatives from the RNCS.
A strict personal data protection procedure
The data matching was carried out following a data protection impact assessment (CNIL), with the approval of the Statistical Confidentiality Committee for access to the data, and in accordance with GDPR procedures. To ensure the protection of the personal data used, the matching was carried out by a trusted third party (the CASD), which had access only to the identifying variables and provided the DGFiP with a non-identifying link key to match the household source files with the firm files. The final data made available to researchers are anonymised (personal identifiers have been removed) and are accessible only via the CASD to ensure compliance with statistical confidentiality. The matched dataset is known as the ‘Double-Matched Database of Company Shareholders and Directors’ (BADS2A).
Data of exceptional quality
The data resulting from this linkage are exceptional on an international scale: to date, only a few Nordic countries, such as Norway and Sweden, have permitted the creation of such datasets for scientific research purposes.
