France: Selected Issues
IMF Staff Country Reports, July 24, 2019
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- France: Selected Issues
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Bibliographic details
- Published: July 24, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513508467.002
Model and approach
- Analyzes France’s fiscal stance using a structural stochastic model.
- The theoretical model features a forward-looking benevolent government that decides the optimal fiscal stance given:
- the level of public debt,
- the cyclical position of the economy,
- expectations about future shocks.
Key findings
- A fiscal consolidation can help build buffers that could help France confront the next downturn from a stronger fiscal position.
- On average, fiscal policy in France exhibited a deficit bias over the past four decades, being unable to react to either rising debt levels, or cyclical conditions.
- A model-based analysis confirms that fiscal policy was generally looser than warranted by cyclical and debt sustainability considerations.
- Part of the looseness is explained by policymakers needing to take decisions based on real-time output gap measures that are subject to uncertainty.
Policy implications and recommendations
- Fiscal consolidation is recommended to rebuild fiscal buffers ahead of the next downturn.
- Strengthening the responsiveness of fiscal policy to debt dynamics and cyclical conditions is implied to reduce the observed deficit bias.
- Improving real-time measurement and treatment of output gap uncertainty would reduce inadvertent policy looseness.
France: Selected Issues, July 24, 2019
Content in this bundle
- France: Selected Issues; IMF Country Report No. 19/246; July 1, 2019