How Do Fiscal and Labor Policies in France Affect Inequality?

By Raphael A Espinoza, . Esther Perez Ruiz

February 29, 2016

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Raphael A Espinoza, and . Esther Perez Ruiz How Do Fiscal and Labor Policies in France Affect Inequality?, (USA: International Monetary Fund, 2016) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Income distribution, Income inequality, Labor, Labor taxes, Minimum wages, National accounts, Taxes, Wages

Keywords: Compress wage dispersion, Differential wage elasticities to unemployment, Differential wage elasticity, Elasticity to employment, Europe, Fiscal policies, Income distribution, Income inequality, Labor market policies, Labor taxes, Market income inequality, Minimum wages, Public goods, Rate of return, Redistribution, Reservation wage, Unskilled wage, Wage, Wage bill, Wage curve, Wage response, Wages, Wedge cut, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/041
Stock No:

WPIEA2016041
ISBN:

9781513515960
ISSN:

1018-5941

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