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Morgan and Prasad on the origins of French and US tax systems

ABSTRACT: We explain why the U.S. has a more progressive tax system than France by exploring the origins of the French and American tax systems in the early 20th century. Our account centers on the sequence of industrialization and state development in each country: the arrival of industrial capitalism in the nineteenth century preceded the formation of state capacity at the national level in the U.S., while a well-developed national state preceded industrial capitalism in France. In the U.S., the absence of a strong state and concomitant abuses by big business led to an intense public interest in disciplining capital, which underpinned a political movement for progressive income taxation. In France, by contrast, a strong state with a well-developed fiscal apparatus was perceived as extremely intrusive, whereas industrial capitalism was less developed than in the US. Instead of rallying the lower and middle classes around a fight against monopoly capitalism and inequality, French income tax advocates instead had to assuage fears of “fiscal inquisition” by the state. When the First World War dramatically increased American and French revenue needs, those needs were met through income taxation in the US, and sales taxation in France, solidifying divergent approaches towards taxation that would endure throughout the 20th century.

Kimberly Morgan and Monica Prasad (2007), “The Origins of Tax Systems: A French-American Comparison.” Unpublished paper. Available here.

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