French Public Finances through the Financial Crisis: It’s a Long Road to Recovery

France was relatively less affected by the financial crisis than its neighbours, but the recovery has been particularly slow. The impact on public finances was nevertheless significant and came on top of a budgetary situation that was already fragile before the crisis. Part of this impact is likely to be permanent and, to date, the French government has mainly relied on tax increases to bring debt under control. However, in 2014, spending cuts became the main tool for restoring balance to public finances.
Despite the significant fiscal adjustments that were required, the crisis was not used as an opportunity to implement reforms. Some reforms of the labour and services markets were carried out, but no radical changes were made. Whilst certain tax changes, such as the reduction in employers’ social security contributions and the increase in reduced VAT rates, have improved the efficiency of the tax system, on the whole, the tax and social security system remains characterised by complexity and a glaring lack of transparency. Given that the remaining efforts to restore balance to public finances are likely to rely on expenditure cuts, the overall effectiveness of the policy response to the crisis will depend largely on how these are implemented.