The Economic Consequences of the French Wealth Tax

La Revue de Droit Fiscal, Vol. 14, p. 5, April 2007

25 Pages Posted: 16 Aug 2009 Last revised: 17 Jun 2011

Eric Pichet

KEDGE Business School

Date Written: September 15, 2008

Abstract

Despite attempts to 'unwind' the Impôt de Solidarité sur la Fortune ('Solidarity Wealth Tax,' the French wealth tax) during the last legislature (2002-2007), ISF yields had soared by 2006, jumping from €2.5 billion in 2002 to €3.6 billion. Analysis of the economic consequences of this ISF wealth tax has raised the following conclusions: Tax collection costs remain low (around 1.6% of proceeds); Not raising the threshold in line with inflation between 1998 and 2004 created windfall revenues for the French State of €400 million in FY 2004 alone; ISF fraud mainly involving an under-assessment of property assets has stabilised over time at around 28% of total revenues, equivalent; (had the legal framework remained unchanged) to a shortfall for the State of €700 million in 2004; Capital flight since the ISF wealth tax’s creation in 1988 amounts to ca. €200 billion; The ISF causes an annual fiscal shortfall of €7 billion, or about twice what it yields; The ISF wealth tax has probably reduced GDP growth by 0.2% per annum, or around 3.5 billion (roughly the same as it yields); In an open world, the ISF wealth tax impoverishes France, shifting the tax burden from wealthy taxpayers leaving the country onto other taxpayers.

Keywords: Wealth tax, Economic consequences of taxation, French taxation, tax competitiveness, fiscal flight

JEL Classification: H22

Suggested Citation

Pichet, Eric, The Economic Consequences of the French Wealth Tax (September 15, 2008). La Revue de Droit Fiscal, Vol. 14, p. 5, April 2007. Available at SSRN: https://ssrn.com/abstract=1268381

Eric Pichet (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

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