A Silent Reform of the Welfare State: Changing Regressive Payroll Taxes into a Progressive Tax System ( France , 1993-2013)

A well-known feature of the “Bismarckian” welfare regime is its funding structure: according to the conservative-corporatist ideal-type, the largest share of social protection is funded through flat rate social contributions (payroll-taxes), which are currently referred to as a regressive form of taxation because the tax-base excludes capital income. The recent literature on welfare state transformation stresses that a tax-funded social protection delivering universal benefits have been implemented in France and other Bismarckian countries beside the traditional one, but generally concludes that the core of the corporatist system, and its regressive tax-structure, have remained essentially unchanged.

Focusing on France, this article shows that the core of the Bismarckian system has been silently reformed on the revenue side: massive social contribution exemptions on low wages have been incrementally developped to foster employment; at the same time a contribution earmarked to social security but levied both on labor and capital income have been raised repeatedly. Together these reforms have turned social contributions into one of the most progressive tax of the tax system. At odds with conventional wisdom, the social contribution system contributes now significantly to the redistribution conveyed by the French tax-benefit system.

As it dramatically reshapes the redistributive features of the Bismarckian system, this evolution can be considered as a major evolution in the design of the French welfare state. This change in the French tax system might have important political consequences, broadening the political base for retrenchment among those who consider now themselves as the financial supporters of the progressivity.