Inequality, Taxation and Redistribution: Insights from a German/French Perspective (EQUITAX)

While wealth and income inequality are on the rise in many countries over the past decades, European Welfare States have come under pressure in a context of persistent economic difficulties and increasing globalization. Adopting a Franco-German perspective, EQUITAX aims to contribute to this issue by shedding light on the most effective tax-and-transfer instruments to fight income and wealth inequality. EQUITAX develop a pioneer and comprehensive analysis on the link between taxation and inequality, combining macroeconomic, theoretical, and applied microeconometric approaches.

The project is comprised of three working packages:

1. The first working package carry out an in-depth comparative analysis of the dynamics of income and wealth inequalities in France and in Germany: Original long-term series of pre-tax and post-tax income inequality for Germany get constructed and combined with the existing French series to investigate how the respective national tax-and transfer systems have succeeded in reducing inequality, and how common and country-specific public policies—such as political, social, and fiscal institutions—affect the historical evolution of income and wealth inequality.
2. The second working package examine the extent to which rich households modify their behavior in response to tax reform. In particular, the combination of excellent administrative tax data from France and Germany and sharp changes get exploited, constituting real “natural experiments”, for the taxation of wealth in France and for the taxation of bequests in Germany. This enables to measure reliable estimates of key inputs for the scientific community and policymakers: What is the impact of wealth taxation on the decision to save, work, emigrate or use optimization strategies minimizing taxable capital income? To what extent do top wealth holders adjust the timing of donations inter vivos in order to avoid bequest taxation?
3. The third working package explore the main inefficiencies of actual tax policies to define an “optimal” system, by combining the inputs from the previous working packages with taxation theory, both from the micro and macro perspective. At first the marginal deadweight loss of taxation along the income distribution of each country get computed in order to point out parts of the distribution on which actual tax systems would be inefficient. Finally, relying on a macro-simulation model a welfare analysis of the impact of different tax reforms in France as well as in Germany gets implemented. This analysis provides a guide for (discussion on) tax policy reforms.