The Economic and Budgetary Consequences of the Responsibility Pact and the True Path of French Public Finances from 2014 to 2017

La revue de droit fiscal 31 July 2014 n° 31-35

26 Pages Posted: 24 Sep 2014

Date Written: July 31, 2014

Abstract

At the end of the “Trente Dispendieuses” (three decades of extravagant spending from 1981-2011), French public opinion is gradually waking up to unchecked deficits and public debt. After soaring public spending in the 1980’s, the happy-go-lucky ‘90’s and excessive use in the 2000’s of various strategies of budgetary procrastination, the government is now being pressured by financial markets (in 2011) and European Union treaties (particularly in 2011 and 2012), to seriously reign in the public deficit. Indeed, in 2013, it significantly exceeded the 3% estimate contained the Finance Act for 2013, to reach 4.3%. Although control over expenditure has improved, the unexpected fall in tax revenue largely explains this shortfall, supporting the theory that there is a national tolerance threshold on tax (varying according to country) which has now been reached in France. Despite the modest efforts set out in the two amended finance laws for 2014 which were presented in June, we estimate the deficit for 2014 will be above 4%. After analysing the Responsibility and Solidarity Pact which entails theoretical savings of €50bn between 2015 and 2017, we anticipate a public deficit for 2015 of close to 4%, i.e. a long way off the government target of 3%, which would probably take the public debt above the 100% of GDP threshold by 2016. Since the government’s method to reduce expenditure is ineffective and doomed, future governments will have no other choice but to take politically and socially painful decisions to cover public deficits which restrict the country’s growth potential and hamper job creation. The sooner the better.

Keywords: budget policy, fiscal policy, budget deficit, finance laws, responsibility and solidarity pact

JEL Classification: E62

Suggested Citation

Pichet, Eric, The Economic and Budgetary Consequences of the Responsibility Pact and the True Path of French Public Finances from 2014 to 2017 (July 31, 2014). La revue de droit fiscal 31 July 2014 n° 31-35. Available at SSRN: https://ssrn.com/abstract=2499496

Eric Pichet (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

Register to save articles to
your library

Register

Paper statistics

Downloads
45
Abstract Views
685
PlumX