This chapter examines developments in France’s financial system since the mid-1980s, and their implications for the system of taxation of returns from saving.1 It will argue that the system is in need of a general review. The original approach to taxation of returns from saving has been overtaken by events, in particular by financial and capital liberalization and European financial market integration, and there has not been a systematic review of its goals and how they might be achieved. Instead, a number of specific taxation provisions have been introduced in a piecemeal fashion and without regard to changing financial circumstances, and have accumulated as a system that is overcomplicated and that frustrates its original (and subsequent) objectives.2 In addition, these provisions have severely reduced the revenues generated from the taxation of returns from saving without, at the same time, significantly increasing the overall incentive to save. The chapter outlines a general perspective that might be adopted in a review of the system and makes some specific policy recommendations.
Interest in monetary aggregates extending beyond national borders has been stimulated by the agreement reached by EU countries at Maastricht in December 1991 to proceed to monetary union, and by recent tensions within the EMS, caused in part by the fact that short-term interest rates have remained high in Germany in order to curb excessive German money growth and combat German inflation, while inflation has been more moderate in neighboring countries such as France, Belgium, and the Netherlands. The eventual achievement of EMU would naturally lead to the use of monetary indicators for the monetary union as a whole; the properties of EU money demand are therefore of interest. A European central bank (ECB) would need credible targets, and it is possible that cross-country monetary aggregates could provide the basis for monetary targeting. Moreover, even at the present time, the presumption that money demand in EU countries may be affected by currency substitution as financial integration with other EU countries proceeds, and the likelihood that economic activity and inflation are affected by monetary conditions in other countries, also make it natural to consider cross-country monetary aggregates.
High unemployment in France has persisted despite the fact that in recent years France’s macroeconomic performance has compared favorably with the other major industrial or EU countries in other respects. Since 1987, growth has been in line with EU and major industrial-country averages while inflation has been below both. Low inflation has contributed to improved competitiveness and, recently, to trade surpluses. However, employment creation was disappointing even in times of strong growth and the recent recession has led to a sharp fall in employment.
Pension schemes in France have provided increasing coverage and benefits during the last 30 years, but their liabilities are essentially unfunded and the aging of the population has cast doubts on the long-run viability of such a pay-as-you-go system. This uncertainty has been acknowledged, but proposals made in the study published by the French authorities in 1991 (Livre Blanc sur les Retraites) were limited to changes in some parameters ruling the current system and did not include the implementation of prefunded pension schemes. This choice was justified by concerns about the guarantees pension funds could ultimately provide to pensioners, income distribution, and the cost of financing a transition from the current system, but apparently did not consider the often salutary effects on capital markets and savings brought about by institutional investors such as pension funds. Therefore, in contrast to the situation in several other developed countries where private pension funds play an important role in providing income for retired workers, large-scale adoption of prefunded pensions in France is not yet certain.
The effect of movements in real interest rates on aggregate investment expenditure has traditionally been considered an important element of the monetary transmission mechanism (see, for instance, Miles and Wilcox (1991)). In France, the issue of the existence and strength of the link between real interest rates and real aggregate expenditure forms a crucial element of the current policy debate, given the tensions inherent in pursuing a firm nominal exchange rate policy in the face of high unemployment and weak macroeconomic activity.
After remaining stable for most of the 1970s, the household saving ratio in France began a steep decline at the beginning of the 1980s (see Chart 1). While a complete understanding of the factors underlying this decline is not yet available, a number of reasons have been put forward that are at least consistent with the observation of reduced saving. These include, among others, reductions in inflation, strong growth in household incomes, significant run-ups in asset prices (stock and house prices), and the process of financial deregulation and liberalization, which may have permitted households that had been liquidity constrained prior to deregulation to engage in consumer borrowing.
International Monetary Fund. External Relations Dept.
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This book, edited by Paul R. Mason, analyses the policy challenges that face the French economy in the second half of this decade, highlighting the need for structural changes to enhance the economy's flexibility. The authors argue that budgetary constraints will oblige France to address structural economic problems by reducing social benefits and cutting government expediture.
Detailed annual data for Fund member governments are supplied on revenue income by source (tax, lending, bonds, etc.), and expenditure by sector (defense, education, health, etc.) for all levels of government (national, state, local). Topics covered include deficit/surplus or total financing, revenues or grants, expenditures, lending minus repayments, domestic financing, foreign financing, domestic debt or total debt, and foreign debt. The Yearbook provides data on budgetary operations, extra-budgetary operations, social security, and consolidated financial operations of central governments. A section of the Government Finance Statistics Yearbook is devoted to a cross-country comparison of data.
The public debt profile has improved in Bolivia in recent years, with regard to both the maturity structure and the currency composition. This paper analyzes changes in the public debt profile in Bolivia since 2000, and the role played by macroeconomic factors and the debt management strategy adopted by the authorities. We find that both played an important role, in particular the strengthening of the fiscal and international reserves positions and the appreciation of the Boliviano; and regulations promoting the use of the domestic currency. Our findings are consistent with Claessens, Klingebiel and Schmukler (2007)—who found that macro and institutional factors had an impact on debt profiles for a group of emerging and developed economies—and are in contrast with the original sin literature, which stresses that profiles are mainly determined by market incompleteness. We also compare the debt profile of Bolivia with those of other countries in Latin America, and find that there is still room for improvement against the regional benchmark, both in terms of maturity structure and currency composition.