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In a world grappling with widening inequality, governments increasingly look to wealth taxes as a tool for redistribution. Yet, a groundbreaking new study reveals how simplifying tax rules—while politically popular—can backfire, significantly eroding tax compliance.
Researchers Bertrand Garbinti, Jonathan Goupille-Lebret, Mathilde Munoz, Stefanie Stantcheva, and Gabriel Zucman analyzed a major French wealth tax reform from 2011, which drastically relaxed reporting obligations for individuals with wealth below €2.57 million. This seemingly minor administrative change allowed taxpayers to bypass detailed asset disclosures, instead reporting only total wealth figures.
The results were striking. The researchers found that 35% of taxpayers in the affected bracket effectively vanished from the tax rolls by 2017, collectively evading 10% of their total annual wealth tax liability. These effects were driven by under-reporting of hard-to-value assets like real estate, while more transparent financial assets remained largely compliant.
“Tax design isn’t just about setting rates—it’s about information,” explains Zucman. “Without strong reporting obligations, even modest taxes can become unenforceable.”
Empirical Innovation: Dynamic Bunching
To isolate the reform’s impact, the team introduced a novel method called “dynamic bunching.” By tracking wealth growth over time among affected and unaffected taxpayers, they identified clear behavioral shifts—especially near the €2.57 million threshold. Wealth growth among affected taxpayers fell by an estimated 0.5 percentage points annually post-reform—primarily driven by a small share of individuals engaging in significant under-reporting.
Importantly, these wealth reductions were not matched by declines in reported labor or capital income, suggesting deliberate misreporting rather than real economic changes.
Global Lessons
The study arrives as wealth taxation resurfaces in global policy debates. In the U.S., prominent political figures have proposed federal wealth taxes, while the G20, under Brazil’s presidency, is exploring a coordinated global wealth minimum tax.
This case study from France delivers a cautionary tale: simplification efforts aimed at reducing taxpayer burdens can inadvertently fuel evasion. The researchers warn against using traditional tax elasticity estimates from regimes where reporting and rate changes overlap, urging policymakers to carefully consider reporting structures alongside rates.
The findings also highlight potential paths forward. Tools such as pre-filled tax returns, automatic third-party reporting, and international data sharing could help counteract evasion risks.
“Tax evasion is not inevitable,” says Stantcheva. “It responds directly to policy choices.”
Implications for Policymakers
- Policymakers designing wealth taxes must weigh the trade-off between administrative simplicity and tax compliance.
- Mandatory reporting on detailed assets, even in lower wealth brackets, may be crucial to preserving tax integrity.
- International collaboration on information sharing can play a decisive role.
As the world’s wealth tax debate intensifies, France’s experience serves as both a warning and a guidepost.
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