Assessing the Future Sustainability of French Public Finances

Abstract

This paper makes a contribution to the debate on the French public finances’ consolidation by investigating the long-term sustainability of France’s fiscal position. We trace the historical trends of government tax receipts and expenditures. We find that while the level of public expenditure in France is larger than in the rest of the euro area (mostly because of public wages and social benefits), its trend is comparable to those of its neighbours. Net lending is also under control, thanks to the high levels of taxation, so that we see no real risk of future unsustainability. However, at present the French tax system is unfair, is not sufficiently progressive, and is too complex. The paper then proceeds to assess the future of France’s public finances on the basis of the current debate on the euro area fiscal rules. We report two analyses — theoretical and empirical — that project the inflation rate and output gap paths for the next twenty years. We finally assess fiscal rules on this ground. The ‘fiscal compact’ fares rather poorly compared to the alternative rules that we assess.KeywordsDeficitsdebtsdebt managementfiscal rulesfiscal compactgolden ruleJEL ClassificationE62E63H61H68