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This working paper is a revised and expanded version of the chapter on France in the book “Chipping Away at the Public Debt—Sources of Failure and Keys to Success in Fiscal Adjustment” (edited by Paolo Mauro and published by John Wiley and Sons, 2011).
The authors thank Benoit Coeuré, Anne-Marie Gulde-Wolf, Erik de Vrijer, Paolo Mauro, Ricardo Velloso, conference participants at the IMF’s Fiscal Affairs Department and seminar participants at the Ministère de l’Économie, de l’Industrie, et de l’Emploi and the IMF’s Fiscal Affairs Department for valuable comments and Pierre Ecochard and Samuel De Lemos Peixoto of the European Commission’s DG ECFIN for help with some of the data. Anastasia Guscina provided excellent research assistance
Between 1986 and 1991, successive governments aimed at reducing the fiscal deficit. Those consolidation efforts were more limited (aiming on average at a structural adjustment of 0.2-0.3 percent of GDP a year) and did not result in a significant reduction of the deficit.
The program also included a devaluation of the French franc, restrictions on spending abroad by French tourists, and the elimination of existing exchange control loopholes.
In this section, “central government” refers solely to the portion of the central government that is covered by the budget laws and does not include other, off-budget central government units, whose spending amounts to roughly 3½ percent of GDP.
In line with French budgetary accounting rules, the transfer of resources to other government subsectors and to the EU are not included in the spending targets but rather are netted out from gross revenue.
These projections were somewhat more optimistic that the consensus forecast, which, in the fall of 1993, expected real GDP growth to average 2½ percent per year over 1995-97.
Unlike in the original plan, which recorded privatization receipts as above-the-line revenue, the updated plan included privatization receipts as part of financing in line with the Maastricht definition.
Excluding privatization receipts, the deficit declined by 1.6 percent of GDP.
Higher-than-expected primary spending reflected primarily the dynamism of the compensation of employees, pensions, and economic transfers; capital spending declined significantly.
The 2003 SP was followed by SPs in 2004 and 2005 that contained updated fiscal targets for the outer years of this consolidation episode.
SP2004, while broadly similar to SP2003 in terms of the overall deficit goals and implementation, contained somewhat less stringent spending targets, but set higher targets for revenues. SP2005 relaxed the deficit targets considerably, presumably because by then the requirement of bringing the deficit below 3 percent of GDP in 2005 was essentially met.
Real spending growth is obtained from nominal expenditures using CPI minus tobacco as deflator.
The average annual real spending growth targets were set for three years. Specifically, in the 2003 SP, targets were set for 2005-07, in the 2004 SP for 2006-08, and in the 2005 SP for 2007-09. Outcomes are computed for the corresponding years. The central government targets are reported in national accounting terms, as different from real spending growth rules set in budgetary accounting terms (Commission des Finances du Sénat, 2010).
Transfers to local governments shown in Figure 10 are a subset of total transfers.
See, for example, Commission des Finances du Sénat (2010