Assessing the impact of the 2018 wealth tax reform in France on inequalities with the Ines microsimulation model

This document explains the method implemented to evaluate the 2018 transformation of the solidarity tax on wealth (impôt de solidarité sur la fortune, ISF) into a tax on real estate wealth (impôt sur la fortune immobilière, IFI) and presents its results. The evaluation is based on the Ines microsimulation model and has been carried out in three stages.
The first one consists in imputing, using the Household Wealth Survey and DGFiP data on ISF and IFI, households’ wealth in the 2016 Tax and Social Incomes Survey (ERFS), which is the input dataset for the Ines model to simulate the tax-benefit system in 2018. Our method makes it possible to obtain imputations of wealth close to the taxable wealth for ISF or IFI observed in tax data. The second step is to simulate the ISF in 2017 and the IFI in 2018 in the Ines model. This second step shows that in 2017, 2% of the overall reduction of living standards inequalities operated by the tax-benefit system is due to the ISF, while the contribution of the IFI in 2018 is 0.6%. Finally, the last step is to determine the counterfactual situation that would have been observed in 2018 in the absence of transformation of the ISF into IFI, to assess the impact of this change. It appears that, with unchanged behaviour, the shift from a wealth tax calculated with the tax base and schedule of the ISF to a tax calculated with those of the IFI results in 340,000 winning households and 10,000 losing households. The effect on the Gini coefficient of living standards inequalities is small (+0.002, or +0.6 %). Gains are highly concentrated at the top of the distribution (57% of the gain goes to the 5% wealthiest people), although there are also gains for households that are lower in the living standards distribution. Gains are higher for households whose reference person is self-employed or retired, who hold more financial assets, and they increase with the age of the reference person in the household. Taking into account behavioural effects (changes in wealth declarations, both downward and upward) leaves unchanged the impacts on the main living standards inequality indicators and reduces very slightly the number of winning households.