Using payroll taxes as a redistribution tool

Payroll taxes are usually designed to fund social insurance and not to contribute directly to redistribution. Over the last fifty years, France has modified dramatically the schedule of payroll taxation, turning it into the most progressive part of its tax system. Using administrative data and detai...

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Bibliographic Details
Published inJournal of public economics Vol. 226; p. 104986
Main Authors Bozio, Antoine, Breda, Thomas, Guillot, Malka
Format Journal Article Web Resource
LanguageEnglish
French
Published Elsevier B.V 01.10.2023
Elsevier
Elsevier BV
Subjects
Business & economic sciences
Economics and Econometrics
Economics and Finance
Economie générale & histoire de la pensée économique
Finance
General economics & history of economic thought
Humanities and Social Sciences
Labor cost
Payroll tax
Redistribution
Sciences économiques & de gestion
Social security contributions
Tax incidence
Wage inequality
Labor cost
Redistribution
Tax incidence
H23
J32
J31
Wage inequality
H24
Payroll tax
Social security contributions
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Summary:Payroll taxes are usually designed to fund social insurance and not to contribute directly to redistribution. Over the last fifty years, France has modified dramatically the schedule of payroll taxation, turning it into the most progressive part of its tax system. Using administrative data and detailed microsimulation model of labor income taxation, we show that pretax wage (or labor cost) inequality measured by the P90/P10 ratio has increased by 15.4%, while net wage inequality has actually decreased by 18.9% over the 1967–2019 period. This reduction in wage inequality can be largely attributed to the policy mix of reductions of employer payroll taxes for low wage earners joined with minimum wage increases. We discuss whether this unusual French experiment carries lessons for other countries. •Net wage inequality has decreased by 19% in France between 1967 and 2019.•This trend contrasts with those observed in most other developed countries.•However, pretax wage inequality has increased by 15%, like in other countries.•This is jointly explained by payroll tax reforms and increases in the minimum wage.•Payroll taxation has become, in France, the main redistributive tool among workers.
Bibliography:scopus-id:2-s2.0-85171756189
ISSN:0047-2727
1879-2316
DOI:10.1016/j.jpubeco.2023.104986