Philippine writes*
In 2018, France replaced the Impôt de Solidarité sur la Fortune (ISF) with the Impôt sur la Fortune Immobilière (IFI), significantly altering the taxation of wealth (Service-Public, 2025). While it is too early to assess the environmental impact of such a taxation amendment in statistical terms, I argue that the reform’s changes in incentives are likely to lead to detrimental environmental consequences.
Increased financial investments, more emissions
The ISF previously taxed both financial and real estate assets, while the IFI only applies to real estate holdings (Bach, 2021). This shift incentivized wealthy individuals to move their investments from real estate to financial assets – many of which support high-emission industries – or move their investments to mobile polluting assets such as yachts (Bonneau, 2020). However, the CO2 emissions related to the financial assets of the wealthiest already have a massive environmental impact. A report revealed that the combined wealth of 63 French billionaires generates as much CO2 as 50% of the country’s population due to their investments in polluting industries (Oxfam, 2023). Accordingly, by eliminating taxation on financial wealth, the state is eliminating barriers for the wealthiest to allocate their capital to high-emission sectors, further exacerbating climate change.
Decreased real estate sustainable investments, more emissions
Furthermore, by taxing real estate more heavily than financial assets, the IFI is expected to discourage investment in the renovation and insulation of buildings (Bonneau, 2020). This, in turn, could slow critical efforts to reduce energy waste and lower carbon emissions. (Bonneau, 2020). The government justified the shift from the ISF to the IFI by arguing that taxing financial wealth less would stimulate economic growth. However, in practice, this change has disincentivized sustainable investments in real estate, further delaying necessary environmental adaptations in the housing sector.
Reduced fiscal resources for green transition
Beyond shifting investments toward carbon-intensive industries, the transition from ISF to IFI also resulted in a significant loss of government revenue. These losses are estimated to exceed 5 billion euros by Thomas Piketty. This drastic reduction in tax revenue also means fewer public funds available for financing the green transition. A report commissioned by the French Prime Minister in May 2023 estimated that achieving the country’s net-zero emissions goals would require approximately €70 billion by 2030 (France Stratégie, 2023). While the direct causal link between the tax reform and decreased environmental funding is complex, the reduction in fiscal capacity due to the tax reform should make it more challenging to secure the necessary public investment to embrace Green Transition effectively.
A proposed solution to counter these challenges is a climate wealth tax, which would consider both wealth level and carbon footprint to determine taxation (Oxfam, 2023). This approach could incentivize wealthy individuals to decarbonize their financial portfolios, steering investments toward greener assets.
Bottom Line: From an environmental perspective, the shift from the ISF to the IFI should have severe negative consequences. By favoring financial investments over real estate, it has increased capital flows into high-emission industries, discouraged sustainable housing investments, and reduced government funding for climate initiatives.
* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂
** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.
I think the possible effect of this change in policy are very interesting, especially the negative effect on the environment you mention. I wonder what the big benefit of changing the Impôt de Solidarité sur la Fortune (ISF) with the Impôt sur la Fortune Immobilière (IFI) are in general that made the government change the policy besides the negative effect it has? Andyou mention that it incentivizes wealthy individuals to move their investments from real estate to financial assets. I wonder how big this effect is as in my mind people still have a preference for investments in real estate. I assume only very wealth individuals will invest more in financial assets after they already own the real estate that they want. So I am curious how much this change in taxation of wealth really impacted the behaviour of the wealthy individuals.
Your question about the main benefit of changing the ISF to IFI has been widely debated among politicians, scholars, and the public. The reasoning behind it is rooted in Macron’s desire to drive investment in France and reduce capital flight, as part of his broader goal to reindustrialize and strengthen the country’s independence. While these may be the intended goals, the real question is whether this was the right tool to achieve them, something only time will tell.
Regarding your second question about how much this reform has influenced investor behavior, this article (Actu Juridique) provides some insightful data. It suggests that the shift from ISF to IFI led to an increase in entrepreneurship, implying a reallocation of capital from real estate to financial assets. Additionally, there has been a rise in people returning to France and becoming taxpayers rather than leaving the country. However, the reform also resulted in a significant loss of tax revenue, and its broader impact on economic growth remains uncertain.
From a more qualitative perspective, I grew up in a household where both my parents worked in real estate, and they noticed a decline in real estate investments, more specifically and mainly in the luxury sector, which suggests that the wealth tax policy change did influence investor behavior.
It is interesting to basically see in real time that removing the wealth tax was a bad policy as it is back on the table today, just a couple years later. Just two weeks ago a bill (written by the French Greens) was passed in the French national assembly to create a minimum 2% tax on individuals whose net worth exceeds 100 million euros, which would overall raise about 15-25 billion euros, much more than what Piketty suggested the previous change lost. Even though it is unlikely to pass in the French Senate and thus will not become official policy, the French Minister of the Economy suggested that the government would be proposing their own wealth tax (less ambitious and therefore with less tax revenue), mainly to increase spending for the military in the context of decreasing reliance on American military power and their withdrawal of support for Ukraine. Climate change or poverty are massive problems of injustice and inequality, but it is a shame that our governments were unable to raise taxes on the rich to deal with them, but with the military they somehow always do. Even a worse case is Britain were a supposedly “Labour” government is aiming to slash foreign aid to increase military spending, instead of just finally TAXING THE RICH.
Thank you for all these ideas, and I will be sure to incorporate them into my research. I recently came across another interesting wealth tax policy, the wealth tax top-up system, advocated by Gabriel Zucman, Under this system, any wealthy individuals would have to pay the difference in tax to their home country if the tax they pay abroad is lower than the tax they would have paid in their home country. This system should help prevent tax evasion and capital flight, but the feasibility and effectiveness of such a measure remain debatable. Indeed, the need for financial transparency, international cooperation, high administrative costs, and the risk of a “race to the top” in terms of taxation calls this policy into question, but it remains an option worth considering.