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Bringing French Public Debt Down: The Options for Fiscal Consolidation

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  • Balazs Egert

Abstract

France has a track record of persistent general government deficits, partly reflecting pro-cyclical fiscal policies in upswings. This has resulted in a quadrupling of its public debt-to-GDP ratio since the 1970s to above 80% of GDP. Reducing public debt is crucial because a high level of public debt may hamper long-term growth and may have a direct impact on fiscal sustainability if long-term interest rates rise. Bringing back public debt to 60% of GDP even by 2030 would require a fiscal effort of 4 to 5 percentage points of GDP (under the assumption of unchanged long-term rates), implying permanent primary general government surpluses, which is very ambitious in view of French fiscal history since 1970. The government’s consolidation programme, which is aimed at reducing the general government deficit to 3% of GDP by 2013, represents around two-thirds of this effort. This study analyses how fiscal governance could be improved by the creation of a structural deficit rule and looks at ways the public deficit could be lowered. With France already having a very large public sector, most of the effort should be borne by holding down spending. Better control of the public wage bill, increasing public-sector efficiency and tackling age-related costs are the obvious candidates to contain expenditure. On the revenue side, there is significant potential for cutting tax expenditures. Furthermore, eliminating distortions in the tax base would encourage economic growth.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3928.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3928

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Keywords: public debt; general government deficit; fiscal rule; structural deficit; fiscal council; government spending; tax revenues; local governments; pension system; healthcare; tax expenditure;

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References

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  1. Lars Jonung & Martin Larch, 2004. "Improving fiscal policy in the EU: the case for independent forecasts," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 210, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7661, C.E.P.R. Discussion Papers.
  3. Isabell Koske, 2010. "After the Crisis - Bringing German Public Finances Back to a Sustainable Path," OECD Economics Department Working Papers 766, OECD Publishing.
  4. Isabelle Joumard & Christophe André, 2008. "Revenue Buoyancy and its Fiscal Policy Implications," OECD Economics Department Working Papers 598, OECD Publishing.
  5. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
  6. Balazs Egert, 2012. "Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-Cyclical?," CESifo Working Paper Series 3777, CESifo Group Munich.
  7. Isabelle Joumard & Christophe André & Chantal Nicq, 2010. "Health Care Systems: Efficiency and Institutions," OECD Economics Department Working Papers 769, OECD Publishing.
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Cited by:
  1. Charles Amo Yartey & Machiko Narita & Garth Peron Nicholls & Joel Chiedu Okwuokei, 2012. "The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean," IMF Working Papers, International Monetary Fund 12/276, International Monetary Fund.
  2. Brigitte Granville, 2013. "The Current Eurozone – an impediment to critical French reform," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 42, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.

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