Public Finance in France (1988-1993) PDF

# Introduction Générale ## Evolution of Public Finances in France | Category | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | |---|---|---|---|---|---|---| | Taxes | 24.1 | 23.8 | 23.6 | 23.7 | 23.0 | 22.3 | | Local Taxes | 16.7 | 16.6 | 16.3 | 15.9 | 15.2 | 14.3 | | European Community | 5.9 | 6.0 | 6....

# Introduction Générale ## Evolution of Public Finances in France | Category | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | |---|---|---|---|---|---|---| | Taxes | 24.1 | 23.8 | 23.6 | 23.7 | 23.0 | 22.3 | | Local Taxes | 16.7 | 16.6 | 16.3 | 15.9 | 15.2 | 14.3 | | European Community | 5.9 | 6.0 | 6.1 | 6.3 | 6.3 | 6.5 | | Social Contributions and "CSG" | 19.8 | 19.9 | 20.1 | 20.5 | 20.7 | 21.3 | | Total | 43.8 | 43.7 | 43.7 | 44.1 | 43.7 | 43.6 | *Source: National Accounts and Budget 1994 ## Exploding Public Deficits in 1993 - France's budget deficit grew from 90 billion francs in 1990 to 320 billion francs in 1993. - Consolidated public sector deficits are predicted to be more than 410 billion francs in 1993, or 5.8% of GDP. ## Explanations for the Increasing Deficit * Stagnant GDP: GDP grew by 0.4% in 1993, while the budget was based on a growth rate of 2.6%. * Strong growth in public debt: Public debt reached 33% of GDP in 1993, surpassing previous levels. * Off-budget spending: certain expenditures are not included in the budget, such as those related to employment-solidarity contracts. * Growing deficits in health and retirement programs (Social Security): Social Security deficits more than tripled between 1992 and 1993. ## The State's role in the history of Economic Thought ### The Mercantilists * Mercantilists were among the first to analyze the state's role in economics. * Mercantilists believed that wealth was based on a country's gold reserves. They favored policies to accumulate gold, like restricting imports and encouraging exports. * This approach can be seen as a precursor to protectionist policies. * It also emphasized the role of the state in promoting economic growth and development, including infrastructure development. ### The Physiocrats * The Physiocrats rejected the Mercantilist focus on gold. Instead, they believed wealth was based on the production of agricultural goods. * They were critical of government intervention in the economy, arguing that it interfered with the natural order of things. * They believed that the government should only play a limited role in protecting property rights and enforcing contracts. ### Adam Smith * Adam Smith, often considered the father of modern economics, argued for free markets and limited government intervention. * While he acknowledged the importance of state-provided goods like defense and infrastructure, he believed that the market would generally allocate resources most efficiently. * He described the market as "an invisible hand" that guided private interests toward the common good. * He advocated for a single tax on land rent as a fair and efficient means of financing government. ### The Historical School * The Historical School, which emerged in Germany in the 19th century, emphasized the unique historical and social context of each nation's economic development. * They argued for a more active role of the state in promoting national development, including investment in infrastructure, education, and industry. ### The Marginalist School * The Marginalist School, which emerged in the late 19th century, focused on the analysis of individual decisions and market processes. * They argued for a more limited role for the state. * The Marginalist school led to the development of concepts like "public goods," which are non-excludable and non-rivalrous, requiring government intervention to provide. ### Karl Marx * Karl Marx was a critic of capitalism and argued that the state served the interests of the capitalist class. * He saw the state as a tool for repressing workers and exploiting the working class. * He believed that the state would eventually be overthrown in a socialist revolution. ### The Italian and Swedish Schools * The Italian and Swedish Schools, which emerged in the late 19th and early 20th centuries, focused on the issue of public goods and the role of the state in providing them. * They argued that the state had a role in financing the production of non-excludable and non-rivalrous goods, such as national defense and public infrastructure. * They used marginalist analysis to determine the optimal level of public goods provision. ### John Maynard Keynes * John Maynard Keynes, a British economist who rose to prominence in the early 20th century, argued for a more active role of the state in managing the economy. * He believed that government spending could stimulate aggregate demand, leading to higher economic growth and employment. * He argued that the government could use fiscal policy (taxes and spending) to mitigate the effects of economic recessions. * He emphasized the importance of public investment in infrastructure and social welfare programs to improve the well-being of citizens. ### William Beveridge * William Beveridge, a British social reformer, is known for his 1942 report, "Social Insurance and Allied Services," which proposed a comprehensive system of social welfare services for all citizens. * Beveridge argued that the state had a moral obligation to provide a minimum standard of living for all citizens. * His work led to the creation of the modern welfare state in Britain and many other countries. ### The Public Choice School * The Public Choice School emerged in the mid-20th century and, with its focus on the individual, challenged the traditional view of government as a benevolent force. * Public Choice theorists argued that government officials, like private individuals, are motivated by self-interest. * This implies that government interventions are prone to inefficiency and rent-seeking behavior. * Public Choice theory suggests that more limited government intervention is often desirable to minimize such inefficiencies. ### The Politics of Public Policy * Many researchers see the intervention of the state as a more complex phenomenon requiring a multi-faceted approach. * The politics of public policy examine public intervention with consideration of the following: * The impact of political coalitions, interest groups, and public opinion. * The role of bureaucracy and the influence of institutional structures. * The unintended consequences of policy implementation. ## Public Spending Growth in France * The growth of public spending in France has been a consistent phenomenon since the 19th century. * However, there are some variations over time in the rate of growth. * The rapid growth of local public services, particularly since the late 19th century, has played a significant role in the rise of public spending in France.