Using payroll taxes as a redistribution tool

Antoine Bozio, Thomas Breda and Malka Guillot

Journal of Public Economics, 2023, vol. 226, issue C

Abstract: Payroll taxes are usually designed to fund social insurance and not to contribute directly to redistribution. Over the last fifty years, France has modified dramatically the schedule of payroll taxation, turning it into the most progressive part of its tax system. Using administrative data and detailed microsimulation model of labor income taxation, we show that pretax wage (or labor cost) inequality measured by the P90/P10 ratio has increased by 15.4%, while net wage inequality has actually decreased by 18.9% over the 1967–2019 period. This reduction in wage inequality can be largely attributed to the policy mix of reductions of employer payroll taxes for low wage earners joined with minimum wage increases. We discuss whether this unusual French experiment carries lessons for other countries.

Keywords: Wage inequality; Payroll tax; Redistribution; Social security contributions; Labor cost; Tax incidence (search for similar items in EconPapers)
JEL-codes: H23 H24 J31 J32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:226:y:2023:i:c:s0047272723001688

DOI: 10.1016/j.jpubeco.2023.104986

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