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  Basic statistics of France, 2011

  This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of France were reviewed by the Committee on 31 January 2013. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 4 March 2013.The Secretariat’s draft report was prepared for the Committee by Hervé Boulhol and Balázs Égert under the supervision of Peter Jarrett. Research assistance was provided by Patrizio Sicari.The previous Survey of France was issued in March 2011.

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  Executive summary

  The French economy has been hit hard by the global recession and, more recently, by turmoil in the euro area. The crisis has been well managed, but unemployment has been rising sharply. As confidence recovers, activity should pick up gradually in the coming two years and the unemployment rate stabilise in late 2013. Yet, France faces serious long-term challenges. While the degree of inequality remains moderate, growth of per capita GDP has been among the lowest in the OECD in the last 20+ years, and firms’ poor competitiveness has risen to the top of the policy agenda.

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  Assessment and recommendations

  The French and euro area economies are highly interconnected. Even though France weathered the crisis relatively well, it is not immune to the profound difficulties afflicting the euro area. Under pressure from financial markets, the authorities have gained credibility in their handling of the budget deficit, and fiscal discipline is being rewarded by the low cost of debt financing. While embarking on fiscal consolidation was inevitable given the level and uptrend of debt, its short-term impact has been to undermine economic growth and exacerbate social problems.

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  The efficiency and equity of the tax and transfer system

  Taxes and cash transfers reduce income inequality more in France than elsewhere in the OECD, because of the large size of the flows involved. But the system is complex overall. Its effectiveness could be enhanced in many ways, for example so as to achieve the same amount of redistribution at lower cost. The French tax code should be simplified and changed less frequently. High statutory rates are coupled with a wide range of effective tax rates resulting from a multitude of tax expenditures. There is a need for base broadening combined with lower rates throughout the system, including VAT. The tax wedge on labour is high, except at the bottom of the wage distribution, which can reduce worker participation and job offers. Greater neutrality both across different capital asset classes but also within specific taxes, and shifting taxes from labour and capital inputs to environmental and property taxes would improve economic outcomes. Likewise, the system of social and family benefits should be simplified to enhance transparency and consistency. Eliminating schemes that let people leave the labour market early, abolishing the pension privileges of specific occupational groups and internalising the costs of survivors’ pension benefits would increase fairness while at the same time generating savings. Better labour-market performance would result from increasing job-search incentives and shortening the parental leave allowance.

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  Improving the economic situation of young people

  The economic situation of young people is unsatisfactory. Educational inequalities have been widening for over a decade, due to a sharp decline in the results of the most highly disadvantaged students. The unemployment rate for the 20-24 age bracket has not dropped below 16% for nearly 30 years. French youth are highly pessimistic about the future and express great distrust of institutions. The social safety net sits uneasily between autonomy and family solidarity and is unfair because young people who are unemployed and have no solid financial backing from their families find themselves in precarious situations. Positive discrimination in education policies should be given a real priority and education spending rationalised to draw more resources to primary schooling. The autonomy of universities should be increased, as should the financial independence of young people. The workings of the labour market, some features of which penalise new entrants, need to be reformed and youth employment services enhanced.

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