Chart of the Week: Budget-friendly, Equitable Growth in France

IMF Blog, May 15, 2017

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Published May 15, 2017.
Draws on an IMF working paper exploring the impact of different policies on efficiency and inequality in France while considering budgetary constraints.
Notes France’s tradition of combating inequality through minimum wage policies and an extensive tax and transfer system.
Highlights that entrenched unemployment and stretched budgets require re-evaluating policy mixes to boost growth, reduce inequality, and minimize costs.

A reduction of the taxes paid on low-skilled workers’ employment (which include payroll taxes and social security contributions):
- Improves output.
- Reduces inequality.
- Is identified as a win-win strategy and has been a policy of choice for successive French governments.
Tax cuts can stimulate employment and investment (upper right quadrant: higher output but increased inequality):
- Cuts to capital income tax and to personal income taxes tend to worsen inequality because capital income is unevenly distributed and these taxes are progressive.
Increasing public employment reduces inequality but also reduces output (lower left quadrant):
- In France, public employment is found to crowd out private employment.

Not a zero-sum game: some policy combinations can produce both higher output and lower inequality.
The chart helps identify which policy combinations can result in win-win strategies that are also budget-neutral.
When governments better understand how different policies affect equality and how they can be combined in self-financing packages, they can make the best choices for win-win strategies.

IMFBlog is a forum for views of IMF staff and officials.
The IMF is an organization of 191 countries, working to foster global monetary cooperation and financial stability.

Source: IMFBlog article "Chart of the Week: Budget-friendly, Equitable Growth in France", May 15, 2017.