French sub-national public finances: on the difficulty of being a decentralized unitary state

Abstract

France has one of the highest reported ratios of general government’s public spending to GDP, a high public sector deficit and a rapidly increasing national debt. France has also followed a systematic policy of decentralization for the past 30 years, the first law for decentralization dating back to 1982. This paper looks into a potential link of causality between those two observations, focusing more specifically on the impact of the recent crisis on the budgets of the various layers of governments. Following an overview of French territorial organization and the main steps of the decentralization process, data are presented on the evolution of public finances at all levels of government in the long run and during the years of crisis until now. It appears that, although local governments are closely monitored and controlled by the central government and various fiscal rules limit their freedom, the present state of decentralization is far from satisfactory and repeated attempts to fix problems have generated legal insecurity as well as a dangerous game-play between local and state representatives. Unless greater coherence is brought to the decentralization mechanism and unless cooperation and confidence are restored between layers of government, the state of public finances will continue to deteriorate. A golden rule for central government’s fiscal policy could help establish the right direction.