IPP Policy Brief n°47 - November 2019

The outlook for the finances of local authorities in France

IPP Policy Brief n°47

November 2019

Authors : Emmanuelle Taugourdeau, Juliette Kies

Contact : emmanuelle.taugourdeau@ens-paris-saclay.fr

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logo-pdf-minThe outlook for the finances of local authorities in France

 

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The decentralisation process begun in the 1980s has regularly broadened the scope of local authorities’ responsibilities, and therefore their expenses. Meanwhile, their financial situation has deteriorated, deepening the inequalities between territories. Is this trajectory in local public finances still tenable ?

At present, this question is a burning issue, especially since President Emmanuel Macron announced the abolition of the residence tax, bringing budget balancing difficulties of local authorities to the forefront. This brief presents an overview of the finances of local authorities and the basic principles of local taxation, in order to examine the issues around equality between territories in the future. Externalities, horizontal and vertical tax competition, budgetary discipline and equalisation mechanisms are all key components in analysing the current situation in France. However, in a period of decentralisation, which equals territorial autonomy, local taxation is not enough to offset the profound disparity between communities. Today, more structural actions must be implemented to correct the imbalance between territories.

Key points:

  • The multitude of decision-making levels in France and its division into some 35,000 municipalities are ill-suited to a context of tax competition.
  • While we are seeing renewed spending (particularly investment spending) by local authorities, their long trend of dissaving and their growing debt seem to be a result of the decrease in allocations from the State.
  • Financial disparity between local authorities has little connection to the management decisions of elected officials, and justifies corrective equalisation mechanisms, although these lack transparency and have limited effectiveness at the municipal level.
  • Local taxation alone cannot make disadvantaged territories attractive without the implementation of more ambitious local planning and development investments.

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