Chapter 1 The key challenges facing the French economy
Output growing at near-potential rates since late 2005, accompanied by an acceleration in employment growth and falling unemployment. The general government budget deficit shrank quite significantly in 2006, even though economic growth was only moderate. The recovery remains rather hesitant, and the slight but persistent growth advantage that France has had over important trading partners such as Germany and Italy for more than a decade seems to have vanished or reversed. Relieving prevalent pessimism and improving the foundations for economic growth would be helped by dealing adequately with poverty and social exclusion, in large part through improved labour-market performance, and by operating an education system that is seen to promote equality of opportunity and prepare young people for the labour market; two chapters of this Survey deal with these issues. Despite the recent improvement in public finances, there remains the longer-term challenge of the demands that demographic ageing will bring, to which a further chapter is devoted. Another challenge for public finance is to organise the decentralisation of government functions to the appropriate level of local government, while maintaining incentives for cost-efficiency, an issue taken up in a chapter on fiscal federalism.
Chapter 2 Combating poverty and social exclusion
Reducing social exclusion and poverty is an important objective for all French governments. The current policy approach involves a large number of measures tailored to different circumstances, and conventionally measured poverty is in fact lower than in most other countries, though still higher than can be easily accepted. Some policies have unwanted side effects on labour market performance, and their cost-effectiveness could be improved to obtain better outcomes with the same resources. Concentrations of poverty and social exclusion in certain geographic areas and among certain groups of the population provide one of the most difficult challenges, for which contributions from education, labour market, housing, urban planning and anti-discrimination policies, as well as from the social services, are necessary.
Chapter 3 Enhancing incentives to improve performance in the education system
The French education system has a mixed record. A generally very successful pre-school and primary school level contrasts with underfunded public universities with high dropout rates alongside very successful higher education institutions for elites selected in various ways. Initial education, especially secondary education and the universities, along with labour market policies themselves, does not always succeed in improving labour market entry for a significant proportion of young people. Parts of the management of education have been decentralised, yet educational institutions themselves generally have a very restricted degree of autonomy. The system of performance measurement and incentives, at all levels, needs to be reviewed.
Chapter 4 Coping with demographic ageing
Past pension reforms have reduced the future costs of ageing for public finance. These costs are still set to rise, however, and health care finance may also pose a problem of similar magnitude – but subject to greater uncertainty. If the reforms are successful, they will stop and reverse the trend towards ever earlier retirement, but low employment among people over 55 is still an important problem, with its origins largely in mistaken policies of the past. The Conseil d’orientation de retraites, COR, has been instrumental in creating a degree of consensus on the nature of the problems; the new government will need to continue the reforms, building on the recent COR report.
Chapter 5 Meeting the challenges of decentralisation
Despite France’s previously well-deserved reputation as a highly centralised state, a significant number of responsibilities have been devolved to regional and local government over the past two decades. The process has not been easy. The extremely large number of very small municipalities makes economies of scale in the implementation of policies hard to realise, and measures to overcome this have been at best only partially successful. Competence is often shared between levels of government, obscuring accountability, and the central government has often retained an arguably unnecessary degree of prerogatives. Reorganising the system to avoid overlapping responsibilities and improving transparency and accountability in local government finance provide some difficult challenges.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of France 2007 is available from:
For further information please contact the France Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Paul O'Brien and Stéphanie Jamet under the supervision of Peter Jarrett.