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Gaulier, G. Gros, D. Issing, O. Janger, J. Kaniovski, J. Kutsam, M. Peneder, A. Reinstaller, S. Sieber, I.


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Stadler, and F. Kaldor, N. Kleinknecht, A. Storm and R. Fadda and P. London: Routledge, pp. Lane, P. Trinity College Dublin. Lazonick, W. Online article 4. Lee, S. McCann eds Regulating for Decent Work. Lucchese, M. Garibaldo, M. Baglioni, C. Casey and V. Ma, G. Basel: Bank for International Settlements. Mazzucato, M. Mortensen, D. Non-financial corporations, as a percentage of their gross value added.

However, France appears more resilient than its main partners. Consumption would rise strongly in , supported by the current improvement in the labour market, some tax cuts, the decline in oil prices and the fading negative effects of the end social protests Figure 5 and Figure 6. In addition, the still.


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Figure 5. The labour market is improving B. Atypical jobs are declining. Nominal wages per employee. Productivity per person employed. Gross household disposable income deflated by the private final consumption expenditure deflator. A large one-off business tax reduction — the tax credit for competitiveness and employment CICE , Box 1 —, lower-than-expected consolidation efforts related to social unrest and the cancellation of environmental tax increases will push the deficit upwards in However, the deficit is set to be close to 2.

Core inflation will increase modestly Figure 7. Ongoing economic growth, although it is slowing, will support a moderate improvement in the labour market situation. A gradual pick-up in wages along with still accommodative monetary policy conditions are supporting a gradual increase in underlying inflation. However, headline inflation is projected to slow down in , reflecting the decline in oil prices at the end of Figure 7. Core inflation remains subdued B. Oil prices are a key driver of inflation. Harmonised indices. In the near term, risks to this outlook are significant.

A more severe slowdown than expected in advanced economies, particularly in Europe, would have adverse effects for exports and investment. Consumption growth might turn out stronger or weaker than expected, as the impact of ongoing tax changes, such as the move to a withholding personal income tax, on consumer confidence and saving behaviour are hard to predict. A number of large possible shocks could also alter the economic outlook significantly Table 2.

A large and prolonged reduction in export production activity leads to lower investment and job losses, harming incomes and government revenues. A disorderly exit of the United Kingdom from the EU, a major trading partner for France, could severely hurt consumer and business confidence, resulting in lower investment. This could also lead to severe congestion in some seaports.

At the same time, the relocation of some financial services could support economic activity in France. Prolonged and heightened social protests would hurt private consumption and business investment as well as exports through weaker tourism. Continue to work in the context of international collaboration towards free markets and improvements to the rules-based trade system. Strengthen the economy's resilience and workforce adaptability to changes in the global economy. Set up contingency plans as planned.

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Better involve the population in the reform process by outlining the expected effects. Offset the potential short-term negative impacts of certain reforms. Trade performance is a vulnerability for the French economy. Goods exports growth has relied on relatively few sectors, particularly aeronautics, transport equipment and agriculture Panel B and Figure 9. Non-price competitiveness is hampered by weaker innovation than in the best performing economies, whereas research spending is mostly directed at industries that are in decline in terms of their share of value added see below.

However, French exports also partly reflect the internationalisation strategies followed by French companies, which have focused on multiplying production sites Emlinger, Jean and Vicard, The current account deficit thus remains moderate at 0. Figure 8. Export performance is disappointing B. Export growth is concentrated. Telecommunications, computer, and information services Charges for the use of intellectual property n. Financial risks Some macro-financial vulnerabilities appear to have worsened relative to , in particular public and private sector debts are near historical highs Figure However, this increase has been accompanied by a rise in the liquid assets that non-financial corporations hold, mitigating risks Khder and Rousset, Against this background, the authorities lowered the.

In March , they also proposed to raise this buffer to 0. The authorities should continue to use macro-prudential policies pro-actively to prevent the build-up of imbalances. Figure Evolution of macro-financial vulnerabilities Index scale of -1 to 1 from lowest to greatest potential vulnerability, where 0 refers to long-term average, period since Household credit Corporate credit Growth in house prices Price to income ratio Residential Real stockinvestment prices. Note: Each aggregate macro-financial vulnerability dimension is calculated by aggregating simple average normalised individual indicators from the OECD Resilience Database.

Individual indicators are normalised to range between -1 and 1, where -1 to 0 represents deviations from long-term average resulting in less vulnerability, 0 refers to long-term average and 0 to 1 refers to deviations from long-term average resulting in more vulnerability. Household credit has reached historically high levels.

However, risks appear overall contained according to the central bank Banque de France, a. A close monitoring of risks related to residential real estate is thereby necessary. Price to rent and price to income ratios remain below the average OECD country and have moderated from their highs in. Yet, price increases in some large cities such as Paris and Lyon have been stronger than at the nationwide level, suggesting that local developments should be carefully monitored, and that appropriate macro-prudential tools should be used if needed European Central Bank, Housing market developments A.

The valuation of commercial real estate requires careful monitoring as France is the most expensive market among large European countries Banque de France, b , and commercial property valuations can signal vulnerabilities in the housing sector as a whole. Enhancing data collection efforts to gauge price dynamics would be a good move, since the quality of existing data is poor European Systemic Risk Board, France is above the OECD average on indicators concerning income and wealth, housing conditions and work-life balance Figure Monetary poverty is low in international comparison Figure 2.

Income and wealth disparities appear moderate Figure 14 and they have been broadly stable over time, even in the upper tail of the income and wealth distribution OECD, a; Balestra and Tonkin, Normalised indicators are averaged with equal weights. Income and wealth disparities are contained but social mobility is weak A.

Income disparities after taxes and transfers. Or latest available year; for France, in Panel B. Unweighted average across countries with available data 27 and 24 countries in Panels B and C, respectively. Employment rates, although back to levels not seen since the early s, remain low in international comparison. The importance of long-term unemployment and the high proportion of fixed-term contracts concentrate the economic and social difficulties on certain households. Many low-skilled workers and labour market entrants are excluded from the labour market, implying a particularly high poverty rate before taxes and transfers.

Long-term inactive and unemployed workers cumulate significant difficulties that tend to concentrate over space OECD, a and be reproduced across generations. Intergenerational social mobility appears weak OECD, a and the link between family. Access to housing and health could also improve further. Productivity growth has been sluggish and declining for the past 25 years Figure 15, panel A.

Capital accumulation per worker has substantially declined well before the crisis, as for most comparable economies. Multifactor productivity, which is more closely related to innovation, also decelerated and appears low in international perspective panel B. Raising multi-factor productivity growth is needed to maintain sustainable and inclusive growth going forward.

The productivity gap between French firms and best performing global firms has widened, notably in services sectors, suggesting that policies that can increase diffusion and spillovers are key Andrews, Criscuolo and Gal, ; Berlingieri, Blanchenay and Criscuolo, ; Cette, Corde and Lecat, Policies to boost skills, innovation and digitalisation will also be needed to boost growth potential, job creation and reduce socio-economic disparities Chapters 1 and 2.

Labour productivity growth has steadily declined A. Growth of productive capital per worker Multifactor productivity growth Labour productivity growth. Trend labour productivity per employee. Annualised trend multifactor productivity growth. Ongoing reforms could help reignite productivity growth. If fully implemented, those reforms would have a meaningful impact on growth and equity in the medium term Table 3 and Table 4.

The estimated impact of selected reforms for which there is sufficient empirical evidence on potential GDP per capita is of the order of 3. The simulated results suggest that the long-term income gains of ongoing reforms would be concentrated around the average household and in the lower- and lower-middle parts of the income distribution Table 4 and Figure Potential impact of some ongoing reforms on GDP per capita after 10 years1 labour market reforms - Higher targeted spending on lifelong training - Lower administrative extension of branch-level. Tax measures - Reduced tax wedge3 - Reduction of capital taxation4 - Steady increase in in-work benefits Prime.

Product market and simplification measures - Simplification of bankruptcy procedures, smoothing of firmsize related thresholds and incentives for employeeparticipation schemes6 Total Ongoing reforms. All figures are rounded to the nearest decimal point. The estimates assume full implementation of the reforms. This estimate assumes a drastic change in the dynamics of extension of collective agreements, as well as an ambitious mobilization and implementation of the recommendations of the expert group that may assess the benefits of extending branch-level agreement.

Reduction of the corporate income tax rate and transformation of the wealth tax. This estimate shows a decline in the effective tax wedge after transfers averaging 2. These estimates are based on De Williencourt et al. Speeding up reforms — while compensating, if necessary, their overall potential negative short-term impact on selected categories of population and continuously evaluating their implementation — could boost productivity growth and gains among low-income households in the medium run.

Increasing competition in markets that are still protected, such as regulated professions and retail trade, raising innovation and business dynamics, and reducing administrative barriers will be key to boost productivity growth. The reforms proposed in this Survey would lift growth, raise productivity and strengthening incentives to invest. This would complement the ongoing reforms. Illustrative simulations suggest that the total estimated total impact of the ongoing and recommended reforms is of the order of a 5. The illustrative long-term income gains of the overall reform package would be tilted towards the lower and average parts of the income distribution Figure The estimated impact of some key structural reforms proposed in this Survey are calculated using historical relationships between reforms and growth in OECD countries Table 4.

These estimates assume swift and full implementation of reforms. Table 4. Labour market reforms - Improved social dialogue2 - Higher effectiveness of activation policies - Gradual increase in the effective retirement age to 64 by Product market and simplification measures - Further simplification of business regulations and opening up of regulated professions Tax and public spending measures.

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Estimates are based on the assumption that the measures to reform social dialogue described in Chapter 1 could reduce the difference between the union membership rates and the coverage rate of collective agreements by an additional 5 percentage points. The output effects from a 0. Mourougane, J.

Botev, J-M. Fournier, N. Pain and E. The reforms used for this illustrative exercise correspond to those described in Tables 3 and 4, except for two measures due to the estimates presented in Causa et al. On the one hand, the effect of reducing uncertainties surrounding redundancy costs Table 3 is not taken into account here. On the other hand, a stronger decentralisation of wage bargaining a change in the index used by Causa et al. However, a quantification of the expected effects on GDP per capita over a year horizon is unavailable.

Reducing public spending and improving their efficiency France has made some progress in reducing public deficits since The budget deficit has declined to 2. This fiscal path will provide support to economic activity in , but, overall, fiscal policy is expected to be broadly neutral in Many euro-area countries that reached fiscal deficits higher than France in have now smaller deficits, such as Spain or Portugal.

This owes in big part to the ability of those countries to reduce their ratio of public spending while France has not been able to do that following the steep increase in panel B. For example, from their peak, Spain, Belgium. During the same period, French public spending was reduced by only one percentage point, implying that most of the fiscal deficit adjustment was on the revenue side.

Table 5. Fiscal indicators As a percentage of GDP The underlying balances are adjusted for the cycle and for one-offs. The French public deficit and spending remain high B. General government total spending. As shown in Table 6, no significant expenditure effort was achieved after , expect in three years, from to The continuous improvement of the structural fiscal balance since owed much to new tax measures especially in ; see Table 6 and non-discretionary factors, such as higher tax elasticities most likely the case in Reducing the fiscal deficit through public spending restraint is key to putting the debt-toGDP ratio on a declining path.

This will entail a stronger control over public spending. Tax revenues are already high, leaving no room of manoeuvre from increasing tax revenues. Indeed, the heavy tax burden will eventual have to decline, since it is detrimental for economic activity and because the social acceptance of additional taxes seems to have reached a limit.

Table 6. Fiscal consolidation efforts since Per cent of GDP. Public spending includes the CICE tax credit for competitiveness and employment. This central scenario assumes that the increase of ageing costs is fully offset by compensatory measures. If this is not the case, the debt-to-GDP ratio would be 5 percentage points higher than in the baseline scenario by This would heighten risks to fiscal sustainability, especially if by that time the level of interest rates has returned to level seen before the financial crisis.

The baseline scenario builds on Table 1 for It assumes a potential growth that increases to 1. The primary balance and GDP deflator are set at The "Not offsetting increase in age-related costs" scenario includes the European Commission projections of total ageing-related public expenditures pensions, long-term care, health and education. These projections suggest ageing-related costs will add 0. This scenario assumes that the primary balance would go from To put the debt-to-GDP ratio firmly on a declining path, further efforts to control expenditures are needed.

At this stage, the foreseen spending cuts only broadly compensate planned tax cuts Table 7 , and a stronger control over public spending will be necessary to sustainably lower taxes, while reducing the public deficit. However, detailed performance objectives on the quality of public services or budget savings are not yet available. A quantitative tracking of the implementation and outcomes of spending reviews will be important to ensure their effectiveness OECD, b.

Main government tax and spending structural measures Estimated effect on the fiscal balance in , per cent of GDP Containment of local-government spending Partial indexation of social benefits to inflation in Containment of health-care spending Cut in subsidised contracts Housing spending reform Cut in the number of civil servants Total spending cuts Cut in the statutory CIT rate Increase in environmental and tobacco taxes December fiscal package Lower taxation on capital income and wealth tax reform Full repeal of the housing tax on main residences Total tax measures Total effect on the fiscal balance.

Note: The estimated fiscal impacts are relative to a no-change scenario relative to GDP in spending and tax revenues from , and assume full implementation. This includes both legislated and anticipated reforms.

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The increase in environmental tax includes the carbon tax hike only. A strategy to reduce public spending in France should include improving its efficiency, particularly those related to local governments and tax expenditures, lowering the publicsector wage bill, and reducing pension spending in relation to GDP.

As in other areas of reform, the expected costs and benefits of measures will need to be clearly communicated. Voters and other stakeholders will need to be convinced of the need for reform and the costs of no action OECD, a. The budget programme foresees that local governments will achieve sizeable spending reductions relative to a no-change scenario Table 7.

A contractual approach with a system of penalties and investment subsidies for municipalities has been set up to foster compliance to the targets set out by the central government. Simplifying the multiple layers of sub-central governments — the so-called mille-feuille — could serve to make spending more efficient and, in due course, realise substantial savings. The territorial reforms reduced the number of regions in metropolitan France from 22 to 13 and increased the size of inter-municipal co-operation structures.

They also created. Yet, they lacked detailed objectives, and early indications suggest that cost savings in the short run have been limited in that the amalgamations of regional administrations were either partial or done based on the most attractive conditions. These reforms also did not fully streamline the allocation of responsibilities between different levels of local governments, suggesting significant room for efficiency gains in this area Cour des comptes, a.

Continuing efforts for streamlining small municipalities would help achieve further efficiency gains. French municipalities are small in international comparison and French metropolitan areas are among the most administratively fragmented in the OECD Figure Small municipalities make it more difficult to internalise spatial spillovers in terms of urban planning, environmental and congestion costs or public services provision. They also compound co-ordination problems by spreading expertise more thinly.

The differentiation of responsibilities depending on the category of inter-municipal cooperation structures is a step in that direction. Moreover, ensuring that regulations applying to local governments are proportional and tailored to them would help limit their effects on public spending Lambert and Boulard, Intergovernmental transfers need to put a stronger focus on standard unit cost approaches to better reflect spending needs of local governments and contribute to contain public spending.

The main central government transfer to the municipal sector dotation globale. Moreover, the lump-sum component of the DGF tends to perpetuate past spending patterns that can lead to sizeable inequalities across jurisdictions Cour des comptes, Giving a stronger role to costbased approaches by defining a basic set of collective goods and services to be delivered by local governments would help better reflect actual spending needs of municipalities.

Moreover, increasing further horizontal equalisation, which corresponds to transfers within the same level of local government, would be helpful in that horizontal transfers have hitherto remained modest in France. Horizontal equalisation tends to achieve better results than vertical equalisation OECD, , which typically corresponds to transfers from the central government to local governments.

Avoiding earmarking further national taxes to local governments is also preferable as earmarked taxes are already largely used in France, and these lead to budget rigidities and incentives for excessive spending Moretti and Kraan, Urban sprawl increases the cost of providing collective goods and services and puts upward pressure on local government spending. French urban areas have noticeably sprawled over Figure 20 , with significant environmental, economic and social consequences OECD, b , as well as risks to underuse infrastructure. Reviewing building restrictions in local land-use plans would also help achieve more sustainable urban development patterns.

Urban population density refers only to population density in functional urban areas FUAs : small cities not forming part of a functional urban area are not considered in the analysis. Reforming the pension system Public expenditures on pensions appear high but broadly under control. However, under the current legislated rules, public expenditures on pensions are set to remain broadly stable until and would decline rapidly thereafter according to the projections from the European Commission European Commission, The financial sustainability of the pension system has been ensured by a decrease in replacement rates which, in the absence of an improvement in the labour market, are expected to decline rapidly Figure 21 , as is the average pension measured as a proportion of the average wage European Commission, According to these projections, in , projected public expenditures would be close to the euro-area average.

However, the pension system suffers from numerous weaknesses. The low adjustment rule of past earnings - based on inflation rather than wages COR, ; Cour des comptes, - could heighten poverty risks for some pensioners in the long run. The coexistence of multiple schemes with different rules also undermines labour mobility, contributes to inequities, and fosters a sense of mistrust in the pension system.

These weaknesses are amplified by the labour market situation. The effective contributory period to public pension are among the lowest in the European Union Figure Weak employment rates and labour market challenges, as well as low effective exit age of the labour market reduce contribution periods and undermine pension rights Chapter 1. The plan to move to a single point-based pension system goes in the right direction to improve labour mobility. The design of adequate contributions and solidarity mechanisms will be key to successfully move to a single pension system Boulhol, Under the current pension system, workers with incomplete careers due to late entry or career breaks have limited benefit losses in international comparison OECD, c; COR, b.

The reform will need to ensure a better visibility of future pension levels. To avoid creating inequities between workers and retirees, it will also be necessary to review the rules for adjusting past earnings based on wages and adjust the other parameters to ensure the sustainability of the pension system Boulhol, Several measures would be desirable. A revision of bonuses could make gradual retirement more attractive OECD, d.

An alternative solution would be to abolish contributions for those who have reached full pension entitlements and continue to work. Raising the statutory retirement age, eventually by indexing it to life expectancy, could also help accelerate the increase in effective retirement age OECD, a. Similarly, survivor pension schemes could be reviewed to increase incentives to work and reduce their costs OECD, c.

Finally, it will be important to ensure the convergence of the parameters of the special pension regimes COR, Family-related pension benefits also appear outdated. They are heterogeneous across pension schemes and the third child top up tend to benefit more men than women and affluent families Vignon, Public spending on pension is set to decline together with replacement rates A.

Public spending on pension, European Commission projections Gross replacement rates are measured as the very first pension benefit relative to the last wage before retirement.


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  • Average contributory period for new pensions. Contributory periods can increase for several reasons, such as, for example, rising statutory retirement ages that force employees or higher employment rates. To contain the ongoing rise in health expenditures, it is particularly important to encourage health practitioners to adopt more efficient behaviours and stem the rise in pharmaceutical spending.

    The development of capitation payments to remunerate health professionals for the prevention and treatment of. In addition, the share of generics in the reimbursed drug market is low in international comparison. Targeted information for hospitals and primary care providers should be strengthened to improve the relevance of prescriptions, and to apply reimbursement ceilings to a wider range of drugs. Reforming the delivery of public services to improve their efficiency Operating and personnel outlays are high and increased rapidly in some sectors Figure The authorities intend to reduce the number of civil servants by by , which corresponds to cuts of the central government and local government workforces by 2.

    To meet these targets, they reorganise further the tax administration and deploy a new voluntary departure programme. The public sector wage bill is high A. The government wage bill is elevated Using digital investment to mutualise the face-to-face delivery of public services would be a good move. Mutualisation can lower costs and promote job mobility across government functions without jeopardising the quality of public services. OECD countries that restructured the way public service is delivered to boost productivity through economies of scale and scope include Canada that merged multiple agencies into a consolidated public service organisation in Service Canada or Norway that established in a unified labour and welfare organisation NAV.

    France could consider following the one-stop-shop delivery model of public services based on the results of the experiments currently. However, the large-scale implementation of a one-stop-shop system for public services would require significant preparation to avoid the undesirable effects of hasty mutualisation. Table 8. Past OECD recommendations to reduce public spending and boost its efficiency Main OECD recommendations Move towards a single pension system to improve labour mobility and lower management costs.

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    Then, gradually increase the minimum retirement age in line with life expectancy. Reform public employee job-mobility rules, and reduce the number of civil servants through a targeted approach, redefining the duties of government, for example with the help of an external audit. Expand electronic health records to improve health-care co-ordination. Summary of actions taken since the Survey Discussions with stakeholders to move to a single pension system started in , and the reform will be voted in The authorities announced quantitative objectives to reduce the number of civil servants in central and local governments by The authorities also target to increase the take-up of generic drugs and develop bundled payments for some long-term diseases.

    The broadening of tax bases will have to go along with lower tax rates, particularly the progressivity of the tax wedge on low- and middle-income households, to strengthen social cohesion. Thorough regular evaluations of tax expenditures have room for improvement, and the authorities are introducing new tax expenditures such as tax-free overtime work, which can have adverse effects on hiring and entails significant dead-weigh costs.

    The benefits of tax expenditures should be systematically evaluated after a few years of implementation. Such reports should be made public and if some tax expenditures are deemed inefficient, the government should phase them out or explain why it wishes to maintain them. Moreover, the case for removing tax preferences in favour of the housing sector is strong, as they can result in a misallocation of capital, away from unsubsidised business activities that are more productive Arnold et al.

    Economic literature: papers , articles , software , chapters , books. Research output as. Paul van den Noord, Wolff, Discussion Papers. More information Research fields, statistics, top rankings, if available. This author has had 25 papers announced in NEP. These are the fields, ordered by number of announcements, along with their dates.