Effects of the 2018 Reforms of Household Capital Taxation on Inequalities in France: A Microsimulation Evaluation

This study assesses the impacts on inequalities and government finances of two 2018 tax reforms in France: (i) the transformation of the solidarity tax on wealth (impôt de solidarité sur la fortune, ISF) into a tax on real estate wealth (impôt sur la fortune immobilière, IFI) and (ii) the introduction of a 30% flat tax on capital income (prélèvement forfaitaire unique, PFU). We use the Ines microsimulation model and the Tax and Social Incomes Survey (ERFS), in which we beforehand imputed households’ wealth using the Household Wealth Survey and administrative fiscal data on ISF and IFI. In the short run, the positive effect of these reforms on living standards is highly concentrated at the top of the distribution, although gains are limited by the increase of the CSG tax rate (which is part of the PFU reform). The two reforms make up a €3.5 billion cost for government finances. However, the short-term behavioral effects of the flat tax on the dividends received by households lead to additional public revenues and make the rise in the living standards of the richest household even more pronounced.