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How Do Fiscal and Labor Policies in France Affect Inequality?
Author:
Mr. Raphael A Espinoza
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and
Mrs. Esther Perez Ruiz
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 041
Language:
English
Publication Date:
29 Feb 2016
DOI:
https://doi.org/10.5089/9781513515960.001
ISBN:
9781513515960
ISSN:
1018-5941
Pages:
44
Keywords:
WP; wage; public goods; rate of return; redistribution; market income inequality; labor market policies; fiscal policies; differential wage elasticity; wedge cut; wage bill; reservation wage; differential wage elasticities to unemployment; wage curve; compress wage dispersion; wage response; elasticity to employment; unskilled wage; Wages; Income inequality; Income distribution; Labor taxes; Minimum wages; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper explores the impact of fiscal and labor market policies on efficiency, inequality, and fiscal outcomes in France. We extend the general equilibrium model calibrated for France by Alla and others (2015), with measures of labor and capital income for different groups in the economy (the unemployed, unskilled workers, skilled workers, public servants). For each of these groups we combine data on the income distribution with the outcomes of policy simulations to assess the impact of a suite of stylized policies on output, the fiscal balance, the Gini coefficient, and the shape of the Lorenz curve. We find that most types of fiscal expansions, while adding to the deficit and debt in the near term, generally reduce inequality, the main exception being capital income tax cuts. A reduction of the minimum wage has an ambiguous impact on the income distribution: the Gini coefficient increases, but the lowest income quintile improves its relative position in the income distribution thanks to positive employment effects. The paper also finds scope for “win-win” policy packages that could improve overall efficiency, inequality, and fiscal outcomes, for instance if targeted labor tax reductions are offset by cuts in the public wage bill.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund