Social Benefits Reduce Inequalities More Than Taxes

Via Le Monde, this is what comes out of a study by the French National Institute Statistics and Economic Studies (link to the English site of INSEE). This study shows that redistribution occurs mostly through social benefits rather than fiscal policy. According to INSEE, the richest categories have most benefited from the 2005 fiscal reform (yeah, I know, big surprise coming from a conservative government). This supposed simplification of the tax code should have resulted in lower tax rates. Overall, income tax contributes 26% of the decline in inequalities, that is 2% less than before the reform.

On the other hand, social benefits have a greater equalizing impact. The standard of living of the poorest 20% families is improved by 47% through the various benefits added to their income. At the other end of the social ladder, the system of wealth-based benefits decreases by 19% the standard of living of the richest 20%. In a separate study, INSEE reports that the richest 10% received 73% of the fiscal benefits. The effect seems to be neutral on the middle classes.

This has important implications for public policy. Although the current government prioritized the reduction of government spending, INSEE studies show that access to public services, especially education, health care and social housing, contributes twice as much to reducing inequalities than monetary transfers.

In other words, a government dedicated to the reduction of inequalities should focus more on the delivery of social benefits and access to quality public services, rather than tax cuts which tend to benefit the wealthy.

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