Middle Classes, Taxation and Democracy in a Globalized World – MIDDLECLASS
Middleclasses, taxation and democracy in a globalized world
This research project mobilizes the instruments of political economy and optimal tax theory to shed light on the link between inequalities, migration and democracy.
Redistribution, inequalities and populism
Part 1 explores the methods of redistribution of wealth, with a particular focus on the tax burden weighing on the middle classes. Part 2 aims to estimate the impact of the evolution, both real and as relayed by the media, of the socio-fiscal system on the vote of the extreme right. This analysis will allow us to shed light on the recent rise of the extreme right among the middle classes in the Western world.
In the first part, we first of all seek to measure the evolution of income inequalities before and after redistribution in France since the beginning of the 20th century and to quantify the extent of the redistribution operated by compulsory deductions and public spending. over a long period.
We then study how taxation affects the behavior of the richest French households through two complementary analyzes. The first studies how taxation influences the decision of the highest incomes to stay (or not) in the national territory according to their level of taxation. The second seeks to estimate the impact of the methods of taxation of the richest on the labor supply or the recourse to tax optimization of the latter. On this basis, we will be able to determine the top of the “Laffer curve” of the richest households, that is to say calculate the highest tax rate which does not lead to outright destruction of wealth. The entire population would suffer. Observed rates lower than these imputed rates would testify to unexploited redistribution margins, and therefore potential tax reforms that could be mobilized to redistribute part of the tax burden from the middle classes to the better-off. Such reforms, compatible with economic efficiency, would also strengthen the equity of the socio-fiscal system.
The question which then arises is that of their political feasibility. We explore this question in an innovative theoretical framework allowing the introduction of the political decision-making process in a model of optimal redistribution of wealth, while taking into account the possibilities of nomadism of citizens.
In the second part, we first seek to measure the effect of taxation and its developments on far-right voting in France. This analysis will then allow a comparison to be made between the intensity of the effects of taxation on the far-right vote, on the one hand, and the estimated impact of the socio-economic determinants highlighted in the literature, of on the other hand, namely unemployment, the exposure of unskilled labor to competition from low-wage countries, or immigration.
We have measured the evolution of income inequalities before and after redistribution in France since the beginning of the 20th century. We have constructed income series after redistribution since 1900, broken down by age, taxes, and social benefits. These long series were obtained by combining national accounts, tax data and survey data, and by simulating the entire French socio-fiscal system using a micro-simulation model. Thanks to these new series, we were able to quantify the extent of the redistribution operated by compulsory taxes and public spending over the last century and until today.
We have developed a framework that makes it possible to articulate the literature on the measurement of inequalities, on the one hand, and the approach to optimal taxation on income, on the other. The starting point is to consider the importance of the notion of rank in the distribution of income or wealth, and to introduce social weights based on rank into the social welfare function. On this basis, we developed simpler and more intuitive marginal tax rate formulas, obtained new comparative statics results, new conditions allowing to exclude or not the bunching phenomenon, and produced tax scale simulations.
We have developed a theoretical framework to understand the notion of political feasibility of a non-linear optimal tax incentive scale. To this end, we have developed the notion of monotonous tax reform. Thanks to this, we were able to extend the median voter theorem to the question of voting on non-linear scales. We show in particular that a monotonous reform reducing the taxation on the less rich agents, whose median voter, while increasing that of the richest, is politically feasible. Symmetrically, a monotonous reform that decreases taxation on the wealthiest agents, including the median voter, and increases that of the less wealthy is politically feasible. Based on these theoretical results, we examine many tax reforms implemented in OECD countries and examine whether they were monotonous.
We considered the effect of media coverage of crimes committed by foreigners on the vote, and more specifically on the vote to ban the construction of new minarets in Switzerland. In doing so, we understand the issue of populism, and its interaction with information processing in traditional and social media. This first article makes it possible to identify a certain number of the mechanisms at work in the development of populism in a growing number of European countries.
On this basis, we will now focus on the following aspects:
- Detailed analysis of the behavioral responses to the tax of the richest French households (section 1.2).
- Determination of unexploited redistribution margins, and therefore potential tax reforms that could be mobilized to redistribute part of the tax burden from the middle classes to the better-off (section 1.2).
- Construction of an optimal income tax model, in an open economy, taking into account a wide range of political constraints (section 1.3).
- Counterfactual analysis aimed at quantifying the impact on the far-right vote of tax reforms (section 2.2).
6 articles published in CNRS ranks 1, HCERES A journals
- including 1 article in the American Economic Review (one of the 5 «best« academic journals in economics)
- 4 publications in leading “generalist” academic income (Journal of the European Economic Association, Review of Economics and Statistics, American Economic Journal: Economic Policy - 2 times)
8 press releases for the general public:
- “Taxing inheritance better”, Polytechnique Insights, 2021 (Bertrand Garbinti)
- “Pre-distribution versus redistribution: Evidence from France and the US”, VoxEu, 2020 (Bozio Antoine, Garbinti Bertrand, Goupille-Lebret Jonathan, Guillot Malka and Piketty Thomas)
- Review of the article “The logic of fear: populism and the media coverage of immigrant crimes”, Review of Economics and Statistics, to be published (Mathieu Couttenier, Sophie Hatte, Mathis Thoenig, S. Vlachos) in VoxEU (here) .
- “Tax Reforms and Political Feasibility” (Felix Bierbrauer, Pierre Boyer, Andrew Lonsdale and Andreas Peichl), The IPP Notes n ° 74, September 2021. Version française.
- «Deepening European integration? Results of a survey of German, French and Italian national parliamentarians ”(Pierre Boyer, Elie Gerschel and Anasuya Raj), Les notes de IPP n ° 56, July 2020. Version française.
- Boyer Pierre. “Joe Biden has the power to impose his tax policy on the rest of the world”, Polytechnique insights, April 2021. Version française.
- “Towards politically feasible and welfare-improving tax reforms” (Pierre Boyer, Felix Bierbrauer and Andreas Peichl), VoxEU, October 2020.
- “The next steps of the European project” (Sebastian Blesse, Massimo Bordignon, Pierre Boyer, Piergiorgio Carapella, Friedrich Heinemann, Eckhard Janeba and Anasuya Raj), VoxEU, August 2020.
1 cycle of conferences available online:
This project lies at the intersection of the political economy literature and the theory of optimal taxation. Its objective is to initiate an analysis on the links between inequalities, migration, and democracy. The first working package focuses on income redistribution, with an emphasis on middle classes. The second working package’s ambition is to estimate the impact of the tax and transfer system, and its media coverage, on far-right parties’ voting shares. This analysis will shed light on the determinants of the rising propensity of the middle class to vote in favor of these far-right parties.
In the first working package, we first aim at measuring the evolution of pre-tax and post-tax income inequality and evaluating the redistributive impact of taxes and transfers on inequality in France since the beginning of the XXth century. We will then conduct two complementary analysis of behavioral responses to taxation among top income earners. The first study will analyze how taxation affects the decision of top income earners to emigrate. The second study will estimate how the design of income taxes may influence labor supply responses and/or the use of tax optimization strategies. Next, we will use the estimated behavioral responses to determine the top of the Laffer curve, that is, the rate of taxation at which tax revenue is maximized. Current top tax rates ranging below this estimated tax rate would suggest the existence of unexploited margins of redistribution, and therefore opportunities to implement tax reforms that would redistribute a part of the tax burden from the middle class to top-income earners. Such reforms, consistent with economic efficiency, would also improve the equity of the tax-and -transfer system. Finally, we turn our analysis into their political feasibility. We will explore this issue by providing theoretical foundations to the political process underlying redistributive policies in a context of international migration.
In the second working package, we will first evaluate the effect of taxation and its evolution on the far-right vote in France. This quantitative analysis will allow us to compare the effect of taxation with that of other socio-economic determinants of the far-right vote identified by the literature, such as unemployment, exposure of low skill workers to import competition, or immigration. Using a structural model of vote, we will then conduct a counterfactual exercise allowing us to quantify the impact of tax reforms favoring the middle class on the far-right vote. We will finally analyze the role of media (traditional or social) on the evolution of the far-right vote. More precisely, we will estimate the effect of the media coverage of tax evasion or tax optimization strategies implemented by individuals or firms on the far-right vote.
Monsieur Laurent Simula (GROUPE D'ANALYSE ET DE THEORIE ECONOMIQUE LYON - ST-ETIENNE)
The author of this summary is the project coordinator, who is responsible for the content of this summary. The ANR declines any responsibility as for its contents.
GATE GROUPE D'ANALYSE ET DE THEORIE ECONOMIQUE LYON - ST-ETIENNE
CREST Centre de Recherche en Economie et Stastistique - CREST
Help of the ANR 272,127 euros
Beginning and duration of the scientific project: March 2020 - 48 Months