Rising Burdens: The Lessons from the French Revolution for Tax Policy | EUROtoday

Now additionally medical health insurance contributions on lease and funding revenue? Higher inheritance taxes? Tobacco tax enhance? Maybe a wealth tax too? The deep holes within the federal and state budgets and within the social safety funds are always giving rise to new concepts for added revenue in Berlin. Tax cuts are solely obtainable for shopper teams with a very good foyer, similar to restaurateurs. The plenty ought to pay extra.

The burden on revenue as a consequence of social safety contributions alone is already round 42.6 p.c, and economists predict that this determine will rise to 50 p.c by 2035. There are additionally taxes – each direct, similar to revenue tax, and oblique, similar to VAT. But how far are individuals prepared to go together with this? When does resistance come up and when do protests in opposition to it happen?

A transparent threshold for this can’t be decided. However, three economists have now impressively demonstrated {that a} tax burden that’s too excessive can result in anger and indignation, even to uprisings and violence, utilizing a historic instance that’s acquainted to everybody: the French Revolution of 1789. This examine can be understood as a warning for these accountable in politics in the present day.

To clarify why the French Revolution broke out, the concepts of the Enlightenment, excessive nationwide debt or starvation crises are classically cited. And the blasé lack of empathy of an aloof elite, expressed in phrases in Queen Marie Antoinette’s saying that if individuals did not have bread, they need to simply eat cake. Although she by no means stated this, she ended up within the guillotine three years later.

Tax burden as a decisive issue

The excessive tax burden can be typically cited as a proof, though hardly ever elaborated upon. Tommaso Giommoni, Gabriel Loumeau and Marco Tabellini, economists on the Universities of Neuchatel and Amsterdam in addition to the Harvard Business School, are actually placing this facet on the heart of their investigations. They clearly conclude that taxation “was an important driver of the French Revolution.” So it wasn’t only a facet facet, however somewhat an engine of the revolution, as a result of the upper the tax burden was in a area, the extra radical the individuals there have been.

The researchers initially present this for the part earlier than the revolution, the interval between 1750 and 1789. Even then, there have been extra unrest in locations with notably excessive tax burdens than elsewhere, and folks there additionally complained extra typically formally concerning the fiscal burden, recorded within the so-called Cahiers de doléances, booklets by which the individuals’s complaints had been listed.

A extra detailed analysis reveals particularly: “The change from a bailiwick within the decrease quarter of the tax burden distribution to 1 within the higher quarter […] leads to greater than a doubling of the variety of unrest,” according to the study. In heavily taxed regions, there was significantly more protest and violence in the run-up to the revolution than in less burdened areas.

The authors examined whether there might not be other reasons for these differences, such as the strength of the spread of Enlightenment ideas, wheat prices, the local presence of aristocrats and clerics, or the size of tax police brigades. To do this, they compared places that were directly on the tax borders. There were high taxes on one side of the border and lower taxes on the other.

The result: “We find that crossing the line from a low-tax to a high-tax community increases the number of riots.” So it was actually the level of taxes, and only this, that led to the differences. And these were huge: “Crossing the border increases the number of riots by 91 percent compared to the sample mean.”

This makes it clear: the level of taxes had a very direct and clear effect on the willingness to protest and violence. But it was primarily indirect taxes that fueled the mood. The salt tax, the so-called Gabelle, was particularly hated. It was considered extremely unfair and varied depending on the region. “It was estimated that an average household in the high-tax area paid about 13 percent of its annual income in salt taxes, compared to 2.5 percent in the low-tax area,” the authors note. And no one could escape the tax because salt was an essential commodity.

The simmering mood was fueled in the 1780s by the extreme climatic events of that time, which led to poor harvests and rising bread prices. This intensified the protests even further, and again especially in the high-tax areas. “We find that hotter-than-average summers lead to greater increases in unrest in high-tax communities than in their low-tax neighbors,” the authors said. Those who were already heavily taxed reacted particularly violently to the supply crisis.

The effect worked even after the revolution

But high taxes did not only encourage protests and rebellion on the road to revolution. The effect was also evident during the revolution itself, particularly during the so-called “Grande peur” (Great Fear) in July and August 1789. After the storming of the Bastille, rumors about aristocratic conspiracies spread in rural France, which led to physical attacks against stately estates and their residents – and here too, the level of taxes acted like an accelerant. “We find that high-tax counties were more likely to be caught up in the panic wave, were hit earlier, and had a larger proportion of the territory affected.”

But even in the revolutionary years that followed, the experience of high taxes continued to have an impact, even after particularly hated taxes such as the salt tax were abolished. Even after 1789, those members of the National Assembly who came from regions with previously high tax burdens appeared particularly radical. “Members of Parliament from high-tax regions were around 70 percent more likely to discuss taxation, 60 percent more likely to criticize the Ancien Régime and around 73 percent more likely to defend the revolutionary project in tax-related speeches,” according to the economists’ statistical analysis. To do this, they analyzed 60,000 speeches by parliamentarians between May 1789 and January 1793.

This can be seen quite dramatically in two particularly momentous decisions that ultimately paved the way to the radical phase and the rule of the guillotine: the abolition of the monarchy and the execution of the royal family. “MPs from high-tax regions were more likely to vote for the execution of the king in January 1793,” the study found. So perhaps the king could have saved his head if he hadn’t gone overboard with taxes.

Finally, the authors draw a connection from occasions in late 18th-century France to normal insights into financial historical past and conclude: “More broadly, our results are consistent with the view that exploitative tax systems can undermine legitimacy and promote revolutionary upheaval.”

In different phrases: If a state locations a heavy and unequal burden on its residents, it loses belief – and within the worst case, its stability. It is a realization that also applies in the present day.

This article was written for the financial competence heart of WELT and “Business Insider Germany“created.

Frank Stocker is an financial and monetary correspondent in Frankfurt. He studies on Investment, Financial markets, financial scenario and Interest coverage. He additionally has books Inflation of 1923 and to History of the D-Mark printed.