France and Social Welfare Programs

Voters in democratic societies like benefits and don’t like taxes.  The French confront a growing national debt caused by large social programs, the financial crisis, and the European debt crisis.  Voters have protested at the suggestion of cuts in benefits and taxes are high.  Proposals for tax increases are modest and are probably regressive (“Analysis: France needs tough reforms to halt debt spike”).  Like other countries in Europe that we call social welfare states, France has a tax structure that is less progressive than the United State’s tax structure (Piketty and Saez “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective,” Journal of Economic Perspectives, Volume 21, Number 1, Winter 2007).  Piketty and Saez write      

During most of the postwar period, income tax progressivity has been substantially greater in Anglo-Saxon countries than in France and most other continental European less in France than in the United Kingdom or the United States. For example, the top .01 percent of the distribution paid 75 percent of income in taxes in the United States in 1970 and over 90 percent of income in taxes in the United Kingdom; but only 49 percent of this group’s total income went to taxes in France. During most of the postwar period, income tax progressivity has been substantially greater in Anglo-Saxon countries than in France and most other continental European countries. For example, Dell (2006) presents an analysis of Germany, which appears fairly close to France.

This pattern illustrates a general point made by Lindert (2004): countries in which government spending is a fairly high share of GDP have always relied on a mix of taxes that create relatively low distortion, with less progressivity, large exemptions for capital income, and so on. Meanwhile, Anglo-Saxon countries in which government spending is a relatively low share of GDP have historically relied on more progressive taxes.