Lilas Demmou
Nikki Kergozou
OECD Economic Surveys: France 2026
Lilas Demmou
Nikki Kergozou
Abstract
After showing resilience to global shocks, economic growth slowed in 2025 amid heightened uncertainty. GDP per capita continues to lag behind top-income economies. This reflects persistent employment gaps, despite strong improvements in the participation of young and older workers. Productivity has recovered from its recent losses, returning to its pre‑pandemic level in 2025. Yet, its growth trajectory remains limited, notably due to weak technology adoption and skills shortages. On the macroeconomic side, stabilising public debt by 2030 is key to preserve fiscal sustainability. The public debt ratio has risen steadily and higher interest rates put fiscal sustainability at risk. In addition, rising spending on population ageing, the climate transition and defence will reinforce these pressures. Significant fiscal consolidation needs to be sustained through gains in spending efficiency and growth-friendly tax reforms.
1.1.1. Policy uncertainty has dampened growth, despite some resilience
Since 2023, growth has remained modest, at around 1.4% on average, yet the economy has shown notable resilience, alongside relatively low inflation and stable unemployment rates (Figure 1.1, Panel A). France has made significant progress in strengthening its price competitiveness, supported by lower inflation and moderate wage growth, which in turn has supported its export performance.
Yet, France has experienced unusually high political uncertainty since 2024, marked by multiple changes of government and a hung parliament, which has complicated consensus-building on fiscal issues. These domestic factors have been compounded by heightened global uncertainty and renewed trade policy tensions (Figure 1.1, Panel B). Together, they have weighed on economic activity by weakening business and household confidence, which has delayed consumption and investment decisions. Political uncertainty could have reduced GDP growth by between 0.2-0.4 percentage points (Banque de France, 2025[1]; OFCE, 2025[2]).
Source: OECD Economic Outlook database; and www.policyuncertainty.com.
Heightened political uncertainty has unsettled financial markets, raising sovereign borrowing costs. France’s traditionally favourable financing conditions have come under pressure. Since the dissolution of the National Assembly in 2024, spreads relative to German bonds have widened during periods of instability and have only narrowed as conditions stabilised. Rating downgrades by Fitch and DBRS also highlight market concerns about persistent political uncertainty and the authorities’ capacity to deliver sustained fiscal consolidation.
Amid this challenging environment, economic activity slightly picked up in the second half of 2025 and in early 2026, mainly supported by robust exports and business investment. However, after initial signs of moderation, momentum was weakened again by the outbreak of the evolving conflict in the Middle East. Short-term indicators deteriorated in March and April 2026: business confidence has been declining since January, after returning to its long-term average at the end of 2025. The unemployment rate has continued to increase after an initial period of resilience.
Since the pandemic, job creation has outpaced GDP growth. In the second quarter of 2025, the employment rate reached a historical high of 69.6%, which was broadly unchanged in the first quarter of 2026 at 69.5% (DARES, 2025[3]). Overall, employment has grown by 9% since 2017, slightly above the EU average (Figure 1.2, Panel B). The expansion of apprenticeships following the 2018 reform and the ramp-up of the 2020 hiring bonus have been major drivers of employment growth, accounting for about one-third of net job creation between 2019 and 2023 (OECD, 2024[4]), although planned reforms tightening the apprenticeship scheme are expected to bring job creation more in line with GDP growth.
Despite high job creation and the sustained increase in purchasing power over the past two years (Figure 1.2, Panel A), private consumption has remained sluggish. Consumer confidence has remained well below its long-term average, and the household gross saving rate reached almost 19% of disposable income in the second quarter of 2025, the highest level since 1979 (excluding the pandemic period). The major energy shock triggered by the evolving conflict in the Middle East has undermined confidence and disrupted the recovery momentum, with the effects expected to be larger the longer the crisis lasts. Although France is somewhat less exposed to oil and gas prices than other European economies due to a significant share of its electricity being produced through nuclear energy, the economic impact is still expected to be significant as rising uncertainty will hurt investment and consumption decisions (see the section on projections below). In this context, France should continue to ensure that any policy response is targeted, timely, and temporary, providing support primarily to vulnerable households and the most exposed firms while preserving price signals and maintaining incentives for energy‑efficiency improvements and reduced fossil‑fuel consumption (OECD, 2026[5]).
Source: OECD Economic Outlook database.
1.1.2. Risks in the banking sector appear limited but require ongoing vigilance
The banking sector has demonstrated resilience to recent shocks. Banks remain well capitalised, with their regulatory tier 1 capital ratio around the OECD average (Figure 1.3, Panel A). The liquidity coverage ratio of almost 150% in the third quarter of 2025 provides a buffer against potential outflows, even if it is below the OECD average (Figure 1.3, Panel B). Finally, the net stable funding ratio of 115% for significant institutions exceeded the 100% requirement in the fourth quarter of 2025 (European Central Bank). Prudent lending standards have helped keep credit losses low. Non-performing loans were around 2% in mid-2025, although slightly above the OECD average. While the banking sector appears sound overall, the profitability of French banks is below that of many OECD peers.
Stress tests conducted under the IMF’s 2025 Financial Sector Assessment Program indicate that banks and insurance companies would remain resilient even under severe adverse scenarios (IMF, 2025[6]). The countercyclical capital buffer (CCyB), currently set at 1%, would be sufficient to absorb the solvency impact of a moderate macroeconomic shock, and combined with current precautionary buffers, would likely be sufficient to enable banks to continue lending under a range of shocks (IMF, 2025[6]). However, if precautionary buffers were lower, the release of the current CCyB might not be sufficient to ensure banks continue to lend under moderate downturn scenarios (IMF, 2025[6]). The authorities should continue to closely monitor risks and raise the CCyB if necessary.
Note: OECD and EU are non-weighted averages.
Source: IMF Financial Soundness Indicators database.
1.1.3. Corporate debt, and to a lesser extent household debt, must also be monitored
The corporate sector shows high debt levels and a recent rise in bankruptcies. While non-financial corporate debt has eased from a peak in 2020 to roughly pre-pandemic levels as a share of GDP, it remains relatively high (Figure 1.4, Panel A). Corporate profit margins remain among the lowest in the euro area. Bankruptcies appear to have been stabilising across sectors and for all sizes of businesses since early 2025, following the post-COVID catch-up (Panel B) (Banque de France, 2025[7]). Bankruptcies could pick up again as businesses that received a government-guaranteed loan at the onset of the pandemic (prêt garanti par l’État) start reaching the deadline for its repayment in 2026. However, the share of loans to defaulting companies in total outstanding loans is falling.
Prudent lending practices and borrower-based measures have helped mitigate housing market risks. House prices and house price-to-income ratios, which had been declining from 2022, appear to have stabilised. In particular, the maximum debt-to-income (DSTI) ratio of 35% with a 20% flexibility margin and a repayment period capped at 25 years have helped to contain households’ indebtedness, which at around 115% of net disposable income in 2025, is close to the OECD average (HCSF, 2024[8]). France does not have limits to loan-to-value (LTV) ratios, unlike most European countries. The share of such loans is relatively high: around 38% of new loans had LTV ratios above 95% in March 2026 (ACPR, 2026[9]), although stress tests suggest that high LTV loans do not currently pose systemic risks (IMF, 2025[6]).
Note: Panel A: Debt excluding trade credit of non-financial corporations.
Source: ECB; OECD Timely Indicators of Entrepreneurship database.
Nevertheless, continued close monitoring of the evolution of LTV ratios is warranted as the housing market strengthens. Some prudential requirements could also be broadened. For example, including home renovation and other loans in the debt-to-income ratio could help avoid leakages (IMF, 2025[6]). While banks have access to a registry of serious repayment incidents, they rely on customers’ legal declarations of other loans. Creating a registry of loans, including consumer loans, similar to the one Belgium created in 2003, should help ensure greater adherence to the DSTI ratio and better protect consumers from excessive borrowing. The establishment of a national register of consumer loans had been announced in France at the end of 2011 to combat over-indebtedness. One main aim of the register, managed by the Banque de France, would be to list all consumer bank loans. Unfortunately, this project could not be completed due to constitutional issues raised by the Constitutional Council at the time. Further consideration of a similar project that would resolve these issues would be welcome.
1.1.4. France has recently regained export market share, but risks weigh on competitiveness
Between 2019 and 2022, French exports were severely affected by two successive shocks: the COVID-19 pandemic and the energy crisis following Russia’s war of aggression against Ukraine, leading to a sharp decline in export market shares. France’s competitiveness has nevertheless gradually improved and it has now recovered its 2019 level in export market shares. That said, developments differ markedly across sectors: automobile exports continue to face persistent challenges whereas aeronautics and services have generated surpluses. Overall, the trade balance remains structurally in deficit (Table 1.1) (see Chapter 4).
Although export performance has improved, French exporters are now facing two additional shocks. Firstly, the average (statutory) tariff levied by the United States (US) on its imports from France increased by around 10 percentage points between January and September 2025. With the termination of International Emergency Economic Powers Act (IEEPA) based tariffs in February 2026, the additional surcharges imposed on exporters to the US were withdrawn, reducing the effective tariff burden for French exporters, although a temporary global tariff of 15% was introduced. France’s direct exposure to US tariffs appears contained at about 1.8% of GDP, with 12% of service exports and 8% of goods exports potentially affected (Figure 1.5). However, the economy is vulnerable to a slowdown in global demand, particularly in Europe, which accounts for 55% of exports. Secondly, the euro appreciated by 15% against the US dollar and 13% against the Chinese renminbi over 2025, further weighing on the competitiveness of exporters. This combination of factors may be difficult for exporters to absorb, particularly given low profit margins compared to euro area peers (see Section 1.1.3).
Note: Panel A and B: Data are collected on the basis of the Harmonised System 2022; Panel C and D: Data are collected according to the Balance of Payments methodology.
Source: United Nations Comtrade database; and OECD Balanced trade in services (BaTIS) database.
Strengthening the non-price competitiveness of exports will help counter pressures on price competitiveness. French exporters benefit from some of the lowest unit labour costs (ULC) in Europe, due in particular to relatively strong wage moderation and large reductions in social security contributions. By contrast, weak trade performance appears to be driven primarily by non-cost factors (Berthou and Gaulier, 2021[10]). This indicates that boosting exports lies in increasing innovation and product differentiation and moving up the value chain (see Chapter 4). Rising EU defence spending also presents opportunities for growth in aerospace and advanced manufacturing exports (see Section 1.3).
1.1.5. Economic growth is set to slow
After moderate growth of 0.9% in 2025, GDP growth is projected to slow to 0.7% in 2026, with adverse spillovers from the evolving conflict in the Middle East offsetting solid growth momentum at the end of 2025. In 2027, growth will pick up slightly to 0.8%, with easing geopolitical tensions lifting underlying activity, while lingering effects from the oil price shock restrain headline growth. Higher inflation will erode purchasing power and weigh on private consumption in the near term, as wages will adjust only gradually. However, a drawdown of historically high household savings and the indexation of the minimum wage to inflation in the summer are set to provide some offset. Net exports will support growth in 2026-27, driven by strong aeronautics and naval exports and sustained wage moderation.
1. Contributions to changes in real GDP.
2. Including statistical discrepancy.
Source: OECD Economic Outlook database.
Business investment is expected to slow amid heightened uncertainty and higher energy input costs, with the projected rise in euro area policy interest rates in mid-2026 adding a further headwind. In 2027, business investment will gradually strengthen, supported by new technology adoption and higher defence spending. While housing credit returned to pre-2023 levels by late 2025 (Banque de France, 2025[11]; 2025[12]), its growth has remained weaker than in the euro area. This suggests that subdued credit dynamics reflect domestic factors such as political uncertainty and lower bank risk appetite rather than limited transmission of monetary policy only (Banque de France, 2025[12]). Building permits issued since late 2024 should support residential investment despite an expected slowdown linked to the rise in financing costs and uncertainty.
Labour market prospects are deteriorating. Following a slowdown in late 2025, job creation is projected to stay muted in 2026, before gradually firming as activity recovers and the international environment stabilises. The unemployment rate is projected to reach 8.3% in 2026 before declining slightly. With the fiscal deficit declining from 5.8% of GDP in 2024 to 5.1% in 2025, the likelihood of reaching the 5% of GDP target in 2026 has improved, provided consolidation continues and energy support remains contained. The deficit is expected to decline further to 4.6% of GDP in 2027, reflecting continued consolidation.
Risks are tilted to the downside. A prolonged disruption to oil and gas supply routes would weigh more heavily on activity and add to inflationary pressures. Renewed policy uncertainty due to the absence of a clear majority in parliament may further constrain households’ and firms’ investment decisions and increase long-term interest rates. On the other hand, the rise in defence spending in Europe could benefit French producers sooner than expected and support exports. Low probability events, such as a sharp escalation in trade tensions, or an extreme weather shock, could lead to significant changes in the outlook (Table 1.2).
Public debt has risen steadily for two decades, from 65% of GDP in 2007 to 115.5% of GDP in 2025. The global rise in interest rates since 2021, together with France’s widening yield spreads, have altered France’s ability to stabilise debt over the medium term. France’s long-term interest rates on government bonds currently being issued are now among the highest in the euro area (Figure 1.6, Panel A). Annual public debt-servicing costs reached 2.1% of GDP in 2025 (Table 1.3), a sharp increase from 1.3% of GDP in 2020. The OECD’s Long-Term Model suggests that refinancing debt at relatively higher interest rates could double the implicit interest rate on debt (Panel B) and lead to a rise in debt-servicing costs to 5% of GDP by 2050, close to the level of education spending. Rising spending on population ageing, the climate transition and defence will add to these fiscal challenges. In this context, continued fiscal consolidation is necessary, relying on measures that are the least damaging for growth, as discussed below.
Source: OECD Economic Outlook database; and OECD Economic Outlook long-term 119 database.
As a percentage of GDP
1. Projections.
2. As a percentage of potential GDP. The underlying balances are adjusted for the cycle and for one-offs. For more details, see OECD Economic Outlook Sources and Methods.
Source: OECD Economic Outlook database.
1.2.1. The fiscal balance has been structurally in deficit for two decades
France has run a cyclically-adjusted primary deficit for two decades (Figure 1.7, Panel A). This reflects both stronger expenditure growth and weaker revenue growth compared to peers (Panel B), and a weaker capacity compared to peers for unwinding fiscal support after a crisis. During the Great Financial Crisis (2008-09), France and the euro area increased primary spending by similar magnitudes, but France had only reversed about half of the increase by 2019, compared with around three-quarters in the euro area. As a result, France’s spending remained 2.1 percentage points of GDP above its pre-crisis level, versus 0.9 percentage points of GDP in the euro area. Moreover, France’s spending reduction is likely overstated, as some tax expenditures linked to the CICE (Crédit d’impôt pour la compétitivité et l’emploi) tax credit were converted into lower social security contributions from 2019, reducing spending by around 0.8 percentage points of GDP (Panel C). Following the COVID-19 pandemic crisis, France has reduced spending more than the euro area, but its budget balance deteriorated further due to a decline in revenues, and more specifically to tax cuts (Figure 1.7, Panel B).
The misalignment in spending and revenue growth highlights the need to strengthen fiscal discipline. To prevent slippages, many OECD countries have adopted medium-term fiscal frameworks supported by credible fiscal rules and monitored by independent fiscal institutions. A typical spending rule is to set spending growth structurally below revenue growth (adjusted for the economic cycle), with corrective measures if not respected. Multi-year budgeting also helps improve policy predictability and ensure that tax cuts or crisis-related spending increases are eventually matched by offsetting measures. France has a multi-year budget framework and an independent fiscal institution, the Haut Conseil des finances publiques (HCFP), since 2013, which is welcome. Consequently, in line with the requirements of the European fiscal framework and the excessive deficit procedure, France submitted its medium-term national budgetary and structural plan in October 2024. The plan aims to limit the growth of primary expenditure to an average of 1.1% per annum over the period 2025–2029, with the objective of stabilising and then reducing the public debt ratio by the end of the period. The plan also includes a commitment to implement a set of structural reforms designed to strengthen potential growth.
Note: Euro area 17 covers OECD Euro area countries.
Source: OECD Economic Outlook database.
France also strengthened the role of the HCFP in monitoring public finance forecasts in 2021. The Fiscal Council now also assesses the realism of the public finance forecasts (revenue and expenditure) contained in financial legislation, as well as compliance with public sector spending targets in relation to the multi-annual guidelines set out in the Public Finance Planning Act. Evidence suggests that the introduction of the HCFP has helped to limit forecast biases regarding the public deficit (Metz, 2025[13]).
However, even if the framework is generally adequate, France should strengthen its adherence to fiscal rules, including those introduced under the new European framework, which entered into force in 2024. For example, it would be useful to further improve the timely access of the HCFP to government data so as to enhance its ability to assess ex‑ante major tax and spending measures. Granting the institution self‑referral powers, enabling it to issue opinions on special budget bills, which ensure the continuity of government operations when the Finance Act has not been adopted before 1 January, and equipping it with autonomous macroeconomic and macro‑budgetary costing capabilities would also strengthen its contribution to the fiscal debate. Indeed, while the HCFP has a significant impact on the accuracy of public‑expenditure forecasts, its effect on growth and revenue forecasts is more uncertain (Metz, 2025[13]).
1.2.2. Significant fiscal consolidation and sequencing are needed to stabilise debt
In the absence of new fiscal measures, the debt-to-GDP ratio could rise from 115.5% in 2025 to 127% by 2030 and reach 203% by 2050 (Figure 1.8), based on public debt simulations. In this illustrative exercise, the “current revenue and spending structure” scenario assumes ageing-related costs evolve in line with projections by the European Commission and that the 2023 pension reform is implemented from 2028. It also includes an increase in green investment of 0.4% of GDP by 2030 (Gouvernement, 2025[14]). Beyond 2030, green investment needs are highly uncertain. This analysis assumes they increase to 0.7% of GDP by 2050. Finally, this scenario includes the commitment made to NATO to raise defence spending to 3.5% of GDP by 2035 (from 2.1% of GDP in 2025). This level of spending would require almost doubling the military budget (excluding pensions). Lastly, this current policy setting scenario assumes that nominal GDP growth will remain slightly higher than interest rates until 2038, owing to the still relatively low interest rates secured on past issuances.
Gross public debt, Maastricht definition, as % of GDP
Note: In the current revenue and spending structure scenario, the structural primary balance is set at its 2025 value and total fiscal costs (ageing, defence, climate) are added. Over the simulation period, the increase in net expenditure linked to demographic ageing (education, pensions, health, and long-term care) is estimated at 0.2% of GDP, and that linked to defence spending at 1.3% of GDP. In the prudent path scenario, the primary balance moves in such a way that the debt-to-GDP ratio peaks in 2029 and stabilises from 2030 onwards. In both scenarios, GDP growth averages 1.4% in real terms over the period. In the third scenario, structural reforms are added to the fiscal measures of the prudent path scenario, raising GDP by 4.6% over 10 years and by 10.5% over 25 years.
Source: OECD calculations based on data from OECD Economic Outlook database.
A second “prudent path” scenario is simulated for comparison. It assumes that the medium-term objectives in the medium-term fiscal and structural plan (PSMT) are achieved, which would stabilise public debt at 122% of GDP by 2030. This scenario would require substantial fiscal consolidation, with a cumulative adjustment by 2030 of around 3 percentage points of GDP compared to the current primary budget balance (around EUR 100 billion), and a total effort of over 6 percentage points of GDP over 10 years.
Estimated change in the fiscal balance (savings (+)/ costs (-)) (% of GDP)
Note: A + or – sign refers to an effect below 0.1% GDP. Short-term measures refer to measures that could be taken in the next four years (to stabilise debt by 2030). Some of these measures will also have a positive indirect impact on the medium-long term fiscal balance due to their positive impact on employment and hence GDP (see Table 1.7).
Source: OECD calculations.
A third scenario assumes that growth rises in line with key recommendations of structural reforms made in this Survey (Box 1.1), leading to stronger employment and productivity growth, which, combined with the prudent path scenario, would further accelerate the decline in the debt ratio. These potential structural reforms include easing regulation in services, strengthening digital tools, including artificial intelligence (AI), and enhancing policies to increase the employment rate of older and younger people.
These illustrative scenarios indicate that a combination of spending and revenue measures will likely be required to stabilise the debt-to-GDP ratio by 2030, although with a stronger effort to reduce spending (Table 1.4). Achieving the medium-term objective through spending alone would require real public expenditure to remain almost unchanged, which appears difficult given current political and social constraints. Conversely, relying exclusively on higher revenues, as in 2025 (and potentially 2026), would require raising the tax-to-GDP ratio to levels that would negatively affect growth. The approach will need to be sequenced:
In the short term, measures supporting rapid fiscal consolidation are needed. On the expenditure side, they could include speeding up the elimination of inefficient tax expenditures, partially freezing spending, and enhancing efficiency of local government spending. The revenue side could include phasing out social security contribution reductions on mid-level wages, given their low efficiency (see below and Chapter 4).
Over the medium to long term, in-depth spending reviews can help identify efficiency gains in expenditure. At the same time, progressively adjusting the composition of taxes is needed to achieve stronger and more inclusive growth, including by shifting taxes away from labour, redesigning the wealth tax system, and expanding carbon pricing and distance-based charges for vehicles. The following sections examine these policy options in more detail.
1.2.3. Stabilising debt will primarily depend on controlling spending
Public spending reached 57.2% of GDP in 2025, 7.4 percentage points above the euro area average. France spends more than the euro area in all major categories, especially pensions, health and economic affairs. Social protection explains around half of the gap, with old-age-related spending explaining roughly 70% of excess social spending (Figure 1.9, Panel A). Health accounts for around 20% of the gap and economic affairs and defence around 16%. These areas are also those where spending has increased the most since 2000 (Panel B). By contrast, slower spending growth since 2000 in areas including education, family benefits, and housing, have helped narrow the gap with the euro area. OECD analysis also suggests room for potential savings in old-age, social protection and health (Barnes, Cournède and Hanmer, 2025[15]).
Reducing the spending-to-GDP ratio will require difficult trade-offs. Comparing fiscal instruments based on their cost effectiveness would help guide the necessary trade-offs to preserve spending that effectively enhances economic growth and reduces inequalities. International experience shows that well-designed, in-depth spending reviews are an effective approach to reduce spending, improving transparency, facilitating communication around reforms, and promoting targeted measures rather than less effective across-the-board cuts (Pina, Hitschfeld and Miyahara, 2025[16]).
Note: Safety stands for "Public order and safety and for Recreation", Culture for "Recreation, culture and religion", Family for "Family and children"; Sickness for "Sickness and disability"; Public services for "General public services".
Source: OECD calculations based on OECD National Accounts database.
France already conducts regular spending reviews, notably through the General Inspectorate of Social Affairs (IGAS) and the General Inspectorate of Finance (IGF), whose specific reports are available on the IGF’s website. Since 2023, nearly forty spending reviews have been conducted, which helped identify potential savings. While the implementation of their recommendations was initially limited (OECD, 2024[4]), numerous savings in the 2025 and 2026 budgets stem from the conclusions of these reviews (with a target of EUR 8 billion over 2025-27). France should continue building on previous reviews to support sustained and credible consolidation, including by strengthening their follow-up. For example, in Denmark, Ireland and Norway, spending reviews support, or are embedded in, the budget process (OECD, 2022[17]). In the Slovak Republic, the Value-for-Money Unit within the Ministry of Finance monitors and systematically reports on the implementation of spending reviews. In Latvia, reports from spending reviews explicitly show the consequent reallocation of expenditure.
The following sections discuss scope for achieving efficiency gains and significantly reducing spending, in particular by examining several areas where France lags behind the best-performing countries despite higher spending.
1.2.4. Ageing-related spending pressures raise financial stability and fairness issues
As shown in Figure 1.9 above, rising ageing-related costs are among the most important drivers of increasing public spending in France, as in other OECD countries. There are two intertwined policy challenges: ensuring the fiscal sustainability of the pension system amid a declining working force and fairly sharing the ageing-related fiscal burden between retirees and the working-age population.
Ensuring the financial stability of the pension system
The rising old-age dependency ratio – from 38% in 2022 to 53% in 2050 and 58% in 2070 – is putting at risk the financial sustainability of the pension system (European Commission, 2024[18]). This implies that there will be 1.9 workers for each person over 65 in 2050, compared with 2.5 in 2024. While the population is ageing, France’s fertility rate has been relatively more favourable than in peer countries, although the latest data released suggest a decline in the fertility rate to 1.6 children per woman compared to 1.8 a decade ago. In addition, a significant decline in the benefit ratio is also helping lower spending pressures. Pension benefits appear relatively high today, with a net replacement rate of 72% of pre-retirement earnings in 2022 (compared to 55% in Germany for example), but following past reforms, replacement rates are projected to stabilise at around 66% for cohorts born after the mid-1980s (COR, 2026[19]).
France has undertaken several parametric pension reforms to address demographic pressures. The most recent is the currently suspended 2023 reform, which proposed to raise the statutory retirement age from 62 to 64 by 2032, in line with recommendations from previous Surveys. Under this reform, pension spending would broadly stabilise, moving from 14.1% of GDP in 2025 to 14.2% by 2045 (COR, 2026[19]). However, the reform would not eliminate the pension system deficit entirely: the French Pensions Advisory Council estimates that the system will face growing financing needs, reaching around 0.2% of GDP in 2030, 0.4% in 2040 and 1.1% in 2070, compared to 0.1% in 2024 (COR, 2026[19]). Therefore, the 2023 pension reform should at a minimum resume as planned from 2028, bringing the statutory retirement age to 64 by 2033.
Going forward, France should consider further raising its statutory retirement age closer to peer countries and indexing the retirement age to life expectancy, as recommended in the past two Economic Surveys of France (OECD, 2024[4]; 2021[20]). Such measures would reinforce fiscal sustainability, providing a double dividend of reducing expenditures while supporting labour supply and economic growth. The average retirement age is currently 64.7 years in OECD countries and is expected to rise to 66.4 years in the future. Nine OECD countries already link retirement ages to life expectancy gains, either partially, by increasing the retirement age by two-thirds of the gains (Finland, the Netherlands, Portugal, Sweden), or fully, by matching the increases one-to-one (Denmark, Estonia, Greece, Italy, Slovak Republic) (OECD, 2025[21]). Simulations by the European Commission suggest that linking the retirement age to life expectancy could reduce the public pension expenditure-to-GDP ratio by 1.0 percentage point by 2070 compared to the current system (with the 2023 reform) (European Commission, 2024[18]).
Reforms linking the retirement age to life expectancy would need to occur alongside those that support older workers to continue participating in the labour market (discussed in Section 1.3). For example, simulations suggest that aligning the employment rate in France to that in Germany, especially for older people, where the gap is the largest, could reduce social protection spending by EUR 5 billion and increase government revenues by EUR 15 billion (Ducoulombier, 2024[22]). Beyond labour market measures, adjustments to pension rights could also help. Allowing pensioners to continue working while still building up some pension entitlements, could make employment more attractive for older people.
France’s pension system remains characterised by a large number of regimes. As part of the 2023 pension reform, the main special regimes (Banque de France, RATP, electricity and gas industries (IEG), the Economic, Social and Environmental Council (CESE), and notary clerks and employees) are being closed to new entrants recruited from September 2023, thereby gradually reducing fragmentation over time (OECD, 2024[4]). Further harmonisation of pension rules could strengthen the system’s long-term sustainability and fairness.
Fairly sharing the cost of ageing across generations
Beyond the financial sustainability issues, the pension system also faces intergenerational equity challenges. In a pay-as-you-go system, it is possible to measure the internal (actuarial) rate of return that equates lifetime contributions with expected pension benefits. In France, the internal rate of return has fallen sharply, from around 2.5% in real terms for cohorts born in the 1940s-50s to about 0.5% for those born around 2000 (Figure 1.10, Panel A). While similar declines are observed internationally due to population ageing, the trend is particularly pronounced in France (Groenewoud and Ponds, 2025[23]). Overall, this reflects a significant redistribution of wealth across cohorts, and younger generations are bearing a relatively higher burden.
Health spending also exhibits clear intergenerational imbalances. For the working-age population, the share of income that finances health spending is strongly progressive and the same is true of mandatory contributions (Figure 1.10, Panel B). However, retirees contribute significantly less to healthcare financing, notably because they benefit from lower rates for the Contribution sociale généralisée (CSG), a broad-based social tax, which finances the social security system. Furthermore, progressivity among retirees almost disappears; mandatory contributions represent only 6% of income for low-income retirees and 8% for high-income retirees, and contributions even become slightly regressive at the top of the distribution (Panel B). As a result, among the 5% of all households that devote the largest share of their income to health spending, half are low-income households (i.e. households below 90% of the median income) (DREES, 2025[24]).
A comparison of average incomes suggests potential scope for adjusting the relative contribution of pensioners and workers to the costs of ageing. Retirees in France are on average comparatively well off (Figure 1.10, Panel C). In addition, retirees’ cumulative real income has increased significantly more than that of working-age households, although the gap has narrowed since the pandemic (Panel D). Wealth is also more concentrated among older households, which hold around 35% more net assets than the population average (COR, 2025[25]) and older people continue to save (INSEE, 2024[26]), ultimately weighing on long-term growth and productivity (IMF, 2025[27]; OECD, 2025[21]).
Rebalancing the distribution of ageing-related costs could occur through a mix of tax measures, including aligning pensioners’ CSG rates with those of active workers and increasing effective taxes by phasing out the 10% tax allowance for pensioners (costing around EUR 4.5 billion annually). Although the average gap in tax rates between pensioners and workers of 7 percentage points is below the OECD average of around 12 percentage points (OECD, 2025[21]), it remains substantial. In addition to income taxation, changes in wealth taxation could also help to strengthen intergenerational equity, particularly through a review of inheritance taxes and unrealised capital gains (see section 1.2.7).
Temporarily freezing pension increases could also support fiscal sustainability and help share the fiscal cost of population ageing more equally across generations than adjustments to pension formulas, which put the burden on future generations (Baurin and Hindriks, 2023[28]). Partially freezing the indexation of pensions in 2019-20 generated substantial savings. The initially planned (but not adopted) measures in the 2026 Budget to freeze basic pensions in 2026 and under-index pensions from 2027 could have reduced expenditure by nearly EUR 4 billion, or 0.13% of GDP in 2026. OECD long-term model simulations suggest that partially freezing pensions, so that the average pension-to-wage ratio declines from 100% to 98% by 2031 and then remains at that level, would reduce the debt-to-GDP ratio by 6 percentage points by 2050. However, considering the heterogeneity of pensioners’ incomes, an across-the-board approach should be avoided; these measures should safeguard modest pensions and be temporary, given the projected decline in retirees’ relative living standards, discussed above.
Note: Panel A: Conseil d’Orientation des Retraites baseline scenario consistent with INSEE’s central demographic assumptions, including continued gains in life expectancy, a fertility rate of 1.45, net migration of 150 000 people per year, annual labour productivity growth of 0.7% from 2040, and an unemployment rate of 7% from 2040. How to read this figure: the internal rate of return for the cohort born in 2000 would be 0.8%. Panel B: Households whose oldest member is employed or retired, living in metropolitan France, with monthly income above EUR 100. How to read this figure: In 2019, health care spending averaged 14% of disposable income for very low-income retired households, including 6% for mandatory health insurance contributions. Panel D: Data prior to 2020 are estimated, current prices data have been deflated using harmonised consumer prices.
Source: COR (2026[19]); DREES, Dépenses de santé: un taux d’effort progressif chez les actifs, plus faible chez les retraités aisés et très élevé pour certains ménages modestes; OECD calculations based on data from the OECD Income distribution database.
1.2.5. Stronger targeting and efficiency will support spending reductions
Increasing the efficiency and outcomes of health spending
Health spending by the state and compulsory schemes reached 9.7% of GDP in 2023, the third highest in the OECD. In per capita terms, health spending is also higher than the OECD average in most health services except in preventive care (OECD, 2025[29]). High spending brings clear benefits: France provides strong financial coverage, with 84% of health services covered by public or compulsory schemes compared to 75% across the OECD in 2023, and households spend less on voluntary schemes and out-of-pocket payments. Health outcomes are also generally strong: life expectancy is high and mortality from treatable causes is among the lowest in the OECD.
Note: High performers is the average of 10 countries with the lowest avoidable mortality in 2023 or nearest year available, excluding Israel due to large demographic differences; and Luxembourg due to significant differences in GDP per capita. They include Australia, Iceland, Italy, Japan, the Netherlands, Spain, Sweden, and Switzerland. Panel A: Inpatient care is curative-rehabilitative care in inpatient and day care settings. Outpatient care is curative-rehabilitative care in outpatient and home care settings and ancillary services. Long-term care only includes health. Governance is spending on administration and governance of the health system. Data for Australia are from 2022. Panel B: Data on mammography screening is not available for Spain. Data for Japan and Switzerland is from a 2020 survey. Data on mortality from treatable and preventable causes is from 2022 for Iceland and Italy, and from 2021 for Japan.
Source: OECD Health at a Glance (2025[29]); and OECD calculations.
However, there is room for efficiency gains since France has higher levels of mortality that could be prevented or treated compared to best OECD performers (Figure 1.11), although France spends more on inpatient care and a similar amount on outpatient care than those countries with the lowest avoidable mortality. Strengthening access to outpatient services would help contain inpatient costs. One increasing challenge, like in many OECD countries, is the increasing involvement of financial investors, including private equity firms and for-profit chains, in the healthcare sector. This can affect prices and service provision. France has begun regulating the financialisation of outpatient activities. Actively monitoring these activities alongside enforcing quality standards, regulating ownership and prices, and regularly reviewing competition in the sector would help limit cost pressures and support quality (Suzuki et al., 2025[30]).
There remains space to reduce elevated spending on pharmaceuticals and medical goods (Figure 1.11, Panel A). The government and compulsory schemes spent 1.7% of GDP on these items in 2023, compared to 0.9% of GDP in countries with the lowest levels of avoidable mortality, in part because they cover a relatively high share of pharmaceutical costs. Biosimilars, a less-costly medicinal product with sufficient similarity to the reference product, represented 20% of the biologic market share in ten key therapy areas in 2023, slightly below the OECD average of 22% (OECD, 2025[29]). Actions have been taken to encourage their use and should be pursued. Greater use of generics could also help contain costs. Generics account for 42% of market volume, compared to 43% across high-performers, 56% across the OECD and more than 80% in Germany and the United Kingdom (OECD, 2025[29]).
France spends little on prevention, yet stronger prevention policies could improve health outcomes, and reduce spending (OECD, 2019[31]; 2021[32]). France spent only 0.2% of GDP on prevention in 2023 and less than the OECD average per person. Prevention policies are especially relevant in reducing relatively high alcohol consumption and smoking rates and promoting physical activity (see Chapter 2). Another priority is increasing cancer screening, with screening rates for breast and colorectal cancers almost 10 percentage points below the OECD average in 2023 and declining for breast and cervical cancer (OECD, 2025[29]).
Budgeting tools could more effectively control health expenditure growth in the medium term. France sets an objective for social health insurance spending (‘objectif national de dépenses d’assurance maladie’, ONDAM) by applying a growth rate to the previous year’s spending and adding the cost of new measures and planned savings. This approach offers flexibility and does not impose strong spending constraints (OECD, 2024[4]). As actual spending has often exceeded the objective (OECD, 2024[33]; Cour des comptes, 2025[34]), France has strengthened monitoring, including through an Alert Committee, which alerts risks of overspending by over 0.5% during the year. While growth in the spending objective is projected to slow, the associated savings are not documented (Cour des comptes, 2025[34]). Defining multi-year targets could further help control spending. Regular health spending reviews, which are already used in 13 OECD countries, will also be needed to support efficiency in the medium term (OECD, 2024[33]).
Streamlining overlap between the government and compulsory and voluntary schemes would further foster efficiency. Administrative costs exceeded those in high-performing countries by around 0.25 percentage points of GDP in 2023 (OECD, 2024[4]), which is in part due to the organisation of dual funding and higher administrative costs in compulsory and voluntary insurance. In 2026, France implemented a temporary 2.05% levy on complementary health insurers on their 2026 health insurance premiums, which will increase social security revenues. While this measure will help fund health spending in the short term, structural reforms, including reforms to reduce the administrative overlap within the two systems, including through improvements to IT systems, could help reduce health spending (HCAAM, 2022[35]).
Making education spending more efficient while reversing declining outcomes
Government spending on educational institutions was 4.7% of GDP compared to 4.3% in the OECD in 2022, yet French 15-year-olds perform similarly to their OECD peers (OECD, 2025[36]; 2024[4]; 2023[37]). In addition, their PISA scores fell more sharply than the OECD average in 2022, reaching a historic low. France spends more per student than countries with the highest PISA scores, suggesting room for efficiency gains while reinforcing performance (Figure 1.12). Furthermore, the projected decline in student numbers (DEPP, 2025[38]; 2025[39]) could provide additional fiscal room of around 0.2 percentage points of GDP by 2029, assuming constant spending per student.
Spending in upper-secondary schools exceeds that of high-performing countries, suggesting room for efficiency gains (Figure 1.12). One option is to increase teaching hours for teachers with the highest qualification, the agrégation, as they receive higher salaries yet teach fewer hours than teachers with the most common qualification. While their higher pay can be justified by their more selective qualification, their reduced teaching load is questionable, as highlighted in the last OECD Economic Survey of France (OECD, 2024[4]). As these teachers make up 6% of lower-secondary and 29% of upper-secondary teachers, such an adjustment could have a significant impact on the wage bill. It would also make more sense if those teachers, based on their higher qualification in principle, only teach at upper-secondary and under-graduate levels (such as preparatory classes (classes préparatoires)). Another option is to reduce the cost-per-student by increasing student-to-teacher ratios in some programmes. General programmes have ratios close to the averages in the OECD, but vocational programmes have a ratio of only 8 compared to 14 in the OECD.
International comparisons suggest that private financial contributions to tertiary education could be increased (Figure 1.12). Tuition fees in public education for EU students are often very low by international comparison (EUR 178 for a bachelor’s, EUR 254 for a master’s, and EUR 2 613 for an engineering student in 2025-26). Increasing student contributions to tertiary education, particularly for master’s students and more costly fields of study, combined with scholarships based on family resources, could help increase educational quality through higher staff-to-student ratios in tertiary education. Such an adjustment would also partially correct for the regressivity of higher education since on average graduates earn higher salaries and are from more advantaged backgrounds (CAE, 2021[40]). Raising the share of international students paying full fees (EUR 2 895 for a bachelor’s and EUR 3 941 for a master’s student), which is currently under 10% (OECD, 2025[36]), could be an additional way to increase the share of private financial contributions.
Increasing the share of students who complete their bachelor’s degree within its theoretical duration could also reduce spending on tertiary education. In 2023, only 34% of students completed their degree on time, compared to 43% across the OECD and 49% in OECD countries with the highest PISA scores (OECD, 2025[36]). Prolonged study durations may signal mismatches between academic requirements and students’ preparations and expectations, or insufficient career guidance. The Parcoursup platform, used for allocating places in tertiary education, assumes that students have already received strong career guidance and does not always provide clear or comprehensive information on programmes. Limited guidance can create pressure to secure any placement rather than the right one and may reinforce inequalities, with students from less advantaged backgrounds more likely to make less ambitious choices (Cour des comptes, 2025[41]). Strengthening career guidance through more professional counsellors, targeted support for disadvantaged students and more time devoted to orientation would help students make better informed choices and reduce both personal and fiscal costs associated with prolonged study durations and dropouts (OECD, 2024[4]).
Public and private expenditure on educational institutions per full-time equivalent student, 2022, thousands USD PPP
Note: High-performing OECD countries are defined as the ten countries with the highest PISA scores averaged across the three subjects in 2022. They include Australia, Canada, Estonia, Finland, Ireland, Japan, Korea, New Zealand, Switzerland, and the United Kingdom.
Source: OECD (2025[36]) and OECD calculations.
France spends less per primary and pre-primary student compared to the average in the OECD and OECD countries with the highest PISA scores. This suggests limited scope for reducing spending, and that savings from demographic changes may need to be allocated to improve outcomes. Several low-cost policies could reinforce outcomes. More school autonomy and accountability in primary schools, collaboration between teachers, and effective teaching practices and training could boost teaching skills and quality (OECD, 2024[4]). Since 2017, France has reduced class sizes for students aged 6-8 in some disadvantaged schools. This measure could be reinforced by sharing practices from schools that achieved the greatest increases in performance and tailoring support to schools obtaining limited improvements.
The decline in student numbers could allow for continued targeted declines in class sizes in disadvantaged schools or a review of primary teachers’ remuneration. Compared with other tertiary educated workers, primary teachers earn far less. The gap between the salaries of other tertiary workers and primary teachers is larger than in most OECD countries, increasing the difficulty of recruiting teachers (OECD, 2025[36]; 2024[4]). For example, the savings from declining student numbers account for two-thirds of the gap with OECD countries with the highest PISA scores. Declining student numbers could also create room to strengthen early education programmes, which could help reduce the strong link between school performance and socio-economic background. Participation in formal childcare for 0-2-year-olds from families in the bottom income tercile is significantly lower than for children from families in the top two terciles (OECD, 2024[4]).
Boosting the efficiency of subnational governments, while limiting the impact of fiscal consolidation on investment
Subnational government spending represented 11.2% of GDP in 2023 and 19.6% of public spending. This is below the OECD average of 16.1% of GDP, which partly reflects the larger role of subnational governments in many OECD countries. However, France’s multiple administrative layers within subnational governments remain complex, creating overlaps and blurring responsibilities between regions, departments, inter-municipal cooperation bodies (EPCIs), municipalities, and the central government (Cour des comptes, 2022[42]). The cost of the entanglement of responsibilities across levels of government alone is estimated at EUR 7.4 billion per year (0.3% of GDP), mainly due to coordination between local and national administrations and management of cross-financing (Ravignon and Blaison, 2024[43]). Around 80% of this cost is borne by subnational governments.
In the medium term, undertaking a full review of the roles and responsibilities at the subnational and national levels of government and the consequent coordination and monitoring required will be key. Recent analysis suggests some areas for supporting efficiency:
Reducing the fragmentation of municipalities. To address fragmentation, inter-municipal cooperation bodies were progressively established and membership is mandatory since 2015 for all municipalities. Further incentives for deeper integration could be created, such as the “commune nouvelle” framework, which allowed municipal mergers while retaining local identities. This model could streamline services, reduce costs, and increase capability while reducing political and practical obstacles (OECD, 2026[44]).
Increasing coordination. With decisions often taken at the level of central government and imposed on subnational governments, greater coordination, such as more consensus decision-making approaches in the Nordic countries, could help better identify spending needs. Setting up high-level conferences between the State and each level of local government could help define the conditions for implementing the financial trajectory for local authorities set out by Parliament (Woerth, 2024[45]).
Adjusting the wage bill. Around 7% of local government employees are expected to retire each year, rising to about 10% from 2035 (Cour des comptes, 2024[46]). This natural turnover provides an opportunity to reorganise and modernise public service delivery, including through a greater use of digitalisation, in order to gradually reduce public spending through efficiency gains.
Partially restoring levels of own-source taxation could help promote good management and increase accountability to citizens. Subnational governments have become more dependent on central transfers following reforms, such as the abolition of the council tax on primary residences (taxe d’habitation sur les résidences principales) and the reduction of the business value-added tax (CVAE). This has reduced “own source” tax revenues and weakened their fiscal autonomy and the link between financing and spending. This also limits their ability to tailor revenues to regional and local needs. Currently, the financing levers available to local authorities do not appear up to future challenges, notably the significant rise in local green investment needs (Sénat, 2025[47]). To increase fiscal autonomy and raise further revenues, potential directions to consider include establishing a new local tax (levied at the level of inter-municipal cooperation bodies) to finance increasing needs for local services, and reinforcing property taxation revenues, one form of own-source taxes, by updating the tax base with current values (Sénat, 2025[47]). Allowing inter-municipal cooperation bodies to request updates to cadastral rental values from the departmental public finance directorate, rather than waiting for a national update, which has been postponed repeatedly over the last few decades, would help in this regard (Woerth, 2024[45]).
Improving the targeting of social protection
In 2023, France spent 10% of GDP on social protection (excluding pensions and health), compared to 9% of GDP in the euro area, spending more in almost all defined categories, including unemployment, family, social exclusion and housing, although the gap has narrowed over the last two decades (COFOG data). France achieves a high degree of redistribution: taxes and transfers reduced the Gini coefficient by around 43% and lowered the poverty rate (at 60% of median income) by almost 30 percentage points in 2022 (OECD Income Distribution Database).
This outcome is achieved due to the large volume of transfers as opposed to the targeting of programmes (IMF, 2023[48]; Rousselon and Viennot, 2020[49]). France spends only slightly more than the OECD average on family benefits (2.6% of GDP in 2022 compared to 2.3% in the OECD in 2021). While general family or single-parent benefits are already means-tested, further tightening eligibility conditions could generate significant savings and improve efficiency by concentrating resources on families most in need. France spent 0.6% of GDP on social housing in 2022, double the OECD average of 0.3% in 2021. Tighter targeting of access to social housing, while still preserving a degree of social diversity to support financial sustainability, could bring significant savings. Rental supplements should also be systematically adjusted when beneficiaries’ situations evolve (i.e. changes in household income).
Replacement rates remain comparatively high for people who have been unemployed for between six months and three years (OECD dataset of Net replacement rates in unemployment). The 2023 reform shortened benefit duration based on macroeconomic conditions, with a 25% reduction when the unemployment rate is below 9% and has risen by less than 0.8 percentage points over the previous quarter. It nevertheless maintains a minimum six-month floor (OECD, 2024[4]). With the 2023 reform still in its early stages, a full evaluation is needed before considering further adjustments to the system that could better support employment.
1.2.6. Optimising the tax system to support revenues and inclusive growth
France’s tax-to-GDP ratio is among the highest in the OECD at 43.5% in 2024, around 10 percentage points above the OECD average. In addition, the tax system is complex, with many loopholes and tax expenditures, reducing its transparency and efficiency. The French tax system is characterised by a narrow base, heavily concentrated on social security contributions, while other taxes as a share of GDP, remain close to the OECD average (Figure 1.13). Due to the need to consolidate, France has limited room to reduce taxes in the short term. It can, however, adopt a sequenced strategy. To begin with, measures can be taken to broaden the tax base and reallocate taxes and tax incentives to rebalance the tax mix and increase the efficiency of the system. Then, once spending has been reduced, a reduction in the rates of the most distortive taxes will help to boost investment and employment. The section below provides direction for redesigning the tax system to be more supportive of growth, employment and the green transition.
Note: Panel A: The OECD and EU aggregates are non-weighted averages.
Source: OECD Global Revenue Statistics database; and OECD Corporate Tax Statistics database.
Reducing the scope of tax expenditures
In 2024, France had around 450 tax expenditure measures for households and firms, representing 2.9% of GDP and 6.8% of total tax revenue (Ecalle, 2024[50]; OECD, 2024[4]) (Table 1.5). These measures contribute to a highly complex and opaque tax system, generating potential windfall gains and economic distortions. Systematic evaluation remains limited (Ecalle, 2024[50]), although recent efforts have reduced the number of tax expenditures, and the 2026 Budget proposes to further suppress some underutilised measures. Ongoing consolidation and systematic evaluation are necessary to strengthen transparency, fiscal efficiency, and policy effectiveness. The savings achieved would make it possible to broaden the tax base and redirect funds to policies that are expected to have a greater impact based on spending reviews (see below). In the medium term, once fiscal space has been restored, the reduction in tax expenditures will need to occur alongside a reduction in rates on the most distortionary taxes.
The research and development (R&D) tax credit is among the most important to consider (EUR 7 billion). R&D tax support is among the most generous in the OECD. Tax credits effectively incentivise R&D expenditures that would otherwise fall below socially desirable levels. However, the overall cost-efficiency of the scheme is reduced by deadweight losses, particularly from R&D by large firms, due to investment which may have occurred anyway. As discussed in Chapter 4, lowering the threshold above which the reduced rate of the R&D tax credit applies could improve the cost effectiveness of the scheme and enhance its incremental impact.
Value-added taxes (VAT) in France represent 17% of government revenue compared to 21% in OECD countries. With a statutory VAT above the OECD average, the lower contribution of VAT to tax revenue is explained by the widespread application of reduced rates. The standard 20% rate applies to only 65% of transactions, while reduced rates target sectors such as hotels, restaurants, home maintenance (with VAT rates of 10%), energy, books, and takeaway food (5.5%), and reimbursable medicines, press, and live performances (2.1%). The fiscal cost of tax expenditures related to these VAT reductions and exemptions reached EUR 17 billion in 2021 (CPO, 2025[51]). While empirical studies show that reduced rates have limited macroeconomic effects, with limited impact on employment, raising VAT rates could have more significant effects, suggesting an asymmetry in their transmission (Benzarti and Carloni, 2018[52]). This result suggests that any reform of VAT exemptions will need to be carefully designed and progressively implemented to avoid negative macroeconomic impacts.
Redesigning employers’ social security contributions to broaden the tax base
Social security contributions (SSCs) represent over one-third of government revenues, and at 14.8% of GDP, are among the highest in the OECD, which averages 8.7% of GDP (Figure 1.13). These high social contributions lead to elevated labour costs, which can particularly distort demand for low-skilled labour. The government supports the employment of low-skilled workers through reductions to employers’ SSCs for workers up to three times the minimum wage (SMIC) on a degressive basis. In 2024, this nearly cost EUR 80 billion or 2.7% of GDP. However, evidence indicates limited effectiveness of these broad-based reductions in supporting employment and trade competitiveness at intermediate wage levels while generating substantial deadweight losses and potentially sectoral distortions (Malgouyres, 2019[53]; Guillou et al., 2016[54]; Malgouyres and Mayer, 2018[55]; Carbonnier et al., 2017[56]) (Chapter 4).
Refocusing reductions on low wages, for example, up to around twice the minimum wage, would generate significant fiscal savings. The magnitude of the savings will depend on the exit threshold of the scheme: about EUR 7 billion if reductions are maintained at up to 2 times the minimum wage (SMIC) according to the Minimum Wage Expert Group (Groupe d'Experts SMIC, 2025[57]) and close to EUR 9 billion if the phase-out is set to just below twice the minimum wage. This reform would allow support to be concentrated where empirical evidence shows the largest employment effects. To avoid sharp increases in labour costs and low-wage traps (Bozio and Wasmer, 2024[58]) a smooth phase-out is needed as well as strengthening investment in skills, which could be financed by the fiscal space created by the reform. Part of the savings could also help finance cuts to more distortive production taxes (Chapter 4). Similarly, social security contribution reductions on wage supplements narrow the tax base with weak evidence of a positive impact on labour supply and could be narrowed (Auclert et al., 2025[59]).
In the medium to long term, shifting part of social protection financing from payroll social security contributions to a broad-based tax could support growth and provide a more sustainable source of revenues for the ageing population. There is a continuing debate on how to ensure sufficient revenues to finance social protection in France, while also simplifying the system, making it more progressive, and possibly broadening the base. Expanding the Contribution Sociale Généralisée (CSG), levied at 9.2% on labour, replacement, and capital income, would lower labour costs, strengthen employment incentives for low-wage workers, and improve horizontal equity by aligning contributions across income types.
Another option used in several OECD countries is a “social VAT”, where part of VAT revenue funds social spending. For example, Denmark abolished employers’ contributions for unemployment and invalidity insurance, offset by a 3‑percentage-point increase in VAT in 1987-89; Germany raised the VAT rate from 16% to 19% in 2007 while lowering social contributions; and Japan increased the VAT rate from 5% to 10% between 2014 and 2019, directing the revenue to social security (Immervoll, 2024[60]). In France, the VAT rate is slightly above the OECD average at 20%, but actual revenues reach only 53% of potential, notably due to tax expenditures, discussed above. This suggests there is scope to reallocate preferential rates towards social transfers or targeted reductions in social security contributions.
Carbon pricing and distance-based charges also have a role to play in broadening the tax base, aligning the cost of polluting activities with their environmental impacts, and maintaining comprehensive coverage of the negative externalities of road transport (see Chapter 3). Revenues from carbon prices are unlikely to provide a stable, long-term source of financing, as the economy decarbonises. However, gradually expanding the use of distance-based charges, such as congestion charges, road tolls, or fees based on the amounts driven, will help cover the externalities of driving, including the costs of congestion, road infrastructure, and traffic accidents, and help maintain revenues as the fuel tax base declines. These revenue sources could be partially used to finance specific social protection measures, such as income transfers that alleviate the regressive impact of rising prices on households, particularly in the context of upcoming fiscal consolidation.
While these measures could be combined to shift the financing of social protection away from labour, a key question is whether they effectively increase employment and investment. Recent evidence suggests that the economic incidence of payroll tax reforms depends on their link to benefits. When SSCs are tied to future benefits, they are seen as deferred wages and largely borne by workers: increases (decreases) are offset by lower (higher) wages, with limited employment effects. When the link is weak, the burden ultimately falls on the taxpayer, and a reform of employers’ social contributions mainly impacts (or benefits) firms. For example, broad SSC reductions since 2015 reduced labour costs for intermediate wages but had little impact on wages or employment (Bozio et al., 2025[61]) (Chapter 4). Reductions in employers’ SSCs are therefore more effective when combined with complementary measures, such as incentives to invest in skills and a corporate tax framework that encourages jobs and investment.
Broadening the corporate tax basis
France has the highest statutory corporate tax rate among OECD countries at 36% (when including exceptional surcharges), over 10 percentage points above the OECD average. However, effective corporate tax revenues are only around the OECD average, suggesting large tax expenditures and allowances, which can also give rise to tax avoidance practices (Figure 1.13, Panel B). The effective average tax rate (EATR), which captures the overall tax burden on profitable investment (including depreciation and allowances), is close to the OECD average, suggesting that the corporate tax system does not place an unusually heavy burden on profitable investment compared to peers. The effective marginal tax rate, which measures the tax burden on breakeven investment, is similarly around the OECD average (Figure 1.14, Panel B). These figures suggest room to broaden the tax base without harming investment decisions and reduce costly tax expenditures based on their efficiency (as discussed in the above section on tax expenditures).
The economic costs of the newly introduced “exceptional tax on highly profitable firms”, implemented in 2025 and adjusted in 2026, have been widely debated. Since 2026, the tax applies to companies with a turnover above EUR 1.5 billion (while it also applied to firms with a turnover over EUR 1 billion in 2025). Evidence shows that the effect of corporate tax reforms on investment varies across firms, often operating primarily through cash-flow channels and disproportionately impacting cash-constrained and smaller firms, rather than through changes in the user cost of capital (Egger, Erhardt and Keuschnigg, 2020[62]). This suggests that the exceptional tax, which is currently targeted towards highly profitable firms with a greater capacity to absorb additional tax burdens, should have a limited effect on investment, at least in the short term. The temporary nature of the tax is also important, as a permanent tax increase could make France less attractive for foreign direct investment, particularly for highly profitable firms. While corporate relocations are another source of concern, since the implementation of the base erosion and profit shifting (BEPS) reforms, capital allocation has become less sensitive to cross-country differences in the cost of capital, reducing pressures for tax competition (OECD, 2025[63]). Therefore, these measures could be temporarily maintained to support fiscal consolidation but should be phased out as soon as the fiscal situation allows in order to promote an investment-friendly environment.
SMEs also benefit from a strong reduction in the statutory corporate tax rate to 15%, applied to the first EUR 42 500 of taxable profit. Such measures are usually economically justified by the greater weight of compliance costs, liquidity constraints and the market advantage of large companies. However, in France this reduced rate applies to firms with a turnover below EUR 10 million. This appears high by international comparison and could be lowered to better target financially constrained SMEs. Another option would be to slightly raise the rate for SMEs in conjunction with the planned increase in the threshold for the reduced rate, to keep the reform revenue neutral.
Simplifying and strengthening wealth taxes
Per-capita wealth in France more than doubled between 2010 and 2024 (Figure 1.14, Panel A). Wealth remains highly concentrated, with inherited wealth rising, as in many OECD economies (OECD, 2021[64]). France collects the highest share of tax revenues from inheritance taxes in the OECD, representing almost 0.8% of GDP in 2024 (Panel B). However, the system still allows tax planning through preferential treatment of life insurance, family businesses, and primary residences, which mainly benefits high-wealth households and lowers the effective top tax rate, indicating scope for reform (Cour des comptes, 2025[65]).
Tax allowances on gifts allow tax-free transfers of up to EUR 100 000 per child every ten years, reducing inheritance tax revenues. Around 40% of adults report receiving an inheritance or substantial gift, ranging from 20% in the bottom wealth quintile to 70% in the top quintile (OECD, 2021[64]). Additional tax avoidance occurs through the transfer of unrealised capital gains (e.g. on primary residences and life insurance), which are generally not taxed at the time of inheritance. Exemptions for family businesses under the Pacte Dutreil also significantly reduce the taxable base. While concerns regarding the ability of the business to continue operating may justify exemptions, they pose several issues. One issue includes considerations around their fairness, as exemptions tend to benefit the wealthiest households, significantly reducing the effective tax burden on some of the largest estates, while there is a lack of evidence of positive macroeconomic impacts (OECD, 2021[66]). According to the Conseil des Prélèvements Obligatoires (CPO), the effective tax rate on a EUR 5 million inheritance can fall to 2% when combining tax relief from the Pacte Dutreil and ownership “démembrements” (i.e. the transfer of asset ownership while retaining use or income rights), compared with 39% without these exemptions (Cour des comptes, 2025[65]). Taxing latent capital gains within inheritance taxes and further limiting tax-free transfers, including establishing a gift regime based on a cumulative exemption threshold set over an individual’s lifetime, such as in Ireland, would reinforce the progressivity of the tax system.
Note: Panel A: Households including non-private institutions serving households.
Source: OECD National Accounts at a Glance database; and OECD Global Revenue Statistics database.
Measures to increase the progressivity of the tax system could be combined with measures increasing general exemption thresholds. These could reduce distortions, as evidence indicates that small inheritances tend to have an equalising effect, i.e. they reduce relative inequality (OECD, 2021[64]). In this context, France appears to have room to raise general inheritance tax exemptions for low-wealth households, as evidence suggests thresholds are below levels associated with significant distributional effects (Morelli et al., 2025[67]). The Cour des comptes has proposed broadly similar reforms (Cour des comptes, 2025[65]).
There is also scope to revise the taxation of capital income, which benefits from numerous preferential regimes in France. Capital gains taxes represent roughly half of wealth-related tax revenues (Cour des comptes, 2025[65]). While wealth taxation has been the subject of intense debate in France, there is scope to reduce tax-avoidance opportunities without strong reforms, both by adjusting taxes on inheritances (as discussed above) and capital gains. In particular, the preferential treatment of capital gains realised through holdings, where gains subject to the 30% flat tax can receive an 88% allowance, creates strong incentives for tax optimisation relative to gains realised by individuals. Aligning effective rates across legal forms would narrow these arbitrage opportunities and enhance neutrality. France could also consider taxing holdings with primarily passive income based on their undistributed profits, except in cases of regular distributions to individual shareholders (who would then be taxed on capital income), in order to limit tax avoidance through income held in holdings.
Raising productivity and employment growth is essential for improving living standards and ensuring fiscal consolidation over the medium term by raising government revenues and reducing associated spending (Figure 1.8). While France has recovered strongly from recent shocks, growth in GDP per capita has lagged behind that of the best-performing countries, while the average OECD country managed to narrow its gap with France (on a PPP basis, Figure 1.15, Panel A). In particular, over 2000 to 2025, GDP per capita in France grew by only around 63% of that of the average EU country, 59% of that of the average OECD country and 54% of that of the US (Panel B).
Note: Panel B: Computed as logarithmic growth.
Source: OECD Economic Outlook database; Employment and unemployment by five-year age group and sex - indicators dataset; and OECD calculations.
1.3.1. Boosting productivity to support rising living standards
Labour productivity growth has lagged that in peer economies (Figure 1.16, Panel A). Some temporary developments have been weighing on labour productivity in recent years, which has just caught up to its pre-pandemic level. Firstly, firms were temporarily hoarding labour following the pandemic and while this has gradually unwound, there still appears room for further easing. Secondly, higher employment of low-skilled workers, including apprentices, has changed the composition of the workforce, which is estimated to account for around one-third of the observed productivity slowdown between 2019-2023 (Devulder et al., 2024[68]). This development is not inherently worrisome and should also have less of an impact going forward (see Section 1.1).
Addressing France’s productivity slowdown in recent decades will require tackling a set of structural, long-term challenges at the national level while also pursuing coordinated and integrated responses at the European level, as weak productivity growth appears to be a broader European challenge (OECD, 2025[69]). France should in particular target its policy actions on (see also Chapter 4):
Alleviating skill shortages and mismatches.
Supporting innovation and knowledge diffusion across firms.
Reducing regulatory barriers.
Increases in defence spending, from 2.07% to 2.3% of GDP by 2030 (with only the 2.3% target currently approved by Parliament), with an ambition to reach 3.5% of GDP by 2035, could also boost medium to long-term productivity growth. The effect on productivity depends on the composition of spending. Investment in infrastructure and equipment can boost short-term productivity by stimulating domestic investment and demand, with fiscal multipliers estimated at about 1.5 after two years (García‐Serrador, Sarasa and Ulloa, 2025[70]). However, maximising fiscal multipliers requires a robust industrial base to limit inflationary pressures and crowding out (see Chapter 4). Over the medium term, increasing the share of defence spending devoted to R&D, which is currently low, could achieve broader economic spillovers (Ilsetzki, 2025[71]). Increasing this share, particularly in dual-use R&D that benefits both civilian and military applications, can enhance the long-term returns of this spending and reduce crowding out of private R&D and human capital. Improvements in procurement that ensure open and competitive bidding and that foster innovation could also enhance the efficiency of public defence investment (OECD, 2025[72]). Addressing education bottlenecks, improving training, and attracting talented workers will be essential to realise these gains.
Source: OECD Productivity database; and Employment and unemployment by five-year age group and sex - indicators dataset.
1.3.2. Supporting employment growth, especially for younger and older workers
The gap in GDP per capita with the top-performing countries can also be explained in large part by employment rates (see Figure 1.15). While employment rates have improved on average since 2017, France still stands out compared to other European countries regarding the employment rates of older and younger workers (Figure 1.16, Panel B). Several measures have been taken to improve the employment of young people, including hiring subsidies for apprentices and specific support for young people facing difficulties to enter the labour market. Rates of young people aged 15-29 not in employment, education or training (NEET) have declined to 14.5%, aided by recent programmes, but remained above the OECD average in 2024 of 12.9% (when excluding non-formal and very short educational activities) (OECD, 2026[73]). The efficiency of the Contrat d’Engagement Jeune (CEJ), which provides personalised guidance and financial support to under-26-year olds (and under 30 year-olds with disabilities), could be strengthened through greater awareness, reduced administrative burdens, a refocus on the most vulnerable, and better business engagement (COJ, 2024[74]). Enhancing vocational pathways and links between education and employers is crucial, with countries with low NEET rates offering greater opportunities for young people to gain work experience, as in successful models in the Nordic countries, Germany, and Switzerland (OECD, 2024[4]).
Pension reforms have supported higher labour market participation of older workers. The employment rate of 55-64-year-olds has continuously risen over the past decade. Nevertheless, employment among 60-64-year-olds remains well below the OECD average, while employment of 55-59-year-olds is near the OECD average but below that in the EU (Figure 1.16, Panel B). Improving older workers’ labour market outcomes requires pursuing efforts to boost their employability through lifelong learning, particularly to adapt to new technologies, as the latest analysis using PIIAC data suggest that older peoples’ skills erode faster in France than across the OECD (OECD, 2024[75]). Strengthening incentives for training and guidance services are also key. The 24 October 2025 law transposing national cross‑industry agreements already moves in this direction, strengthening social dialogue on the employment of older workers, improving preparation for the second half of careers through ‘career path reviews’ linked to workers’ health status, and facilitating phased-in retirements, including part‑time work, from age 60. It also introduces a five‑year pilot of the Experience Valorisation Contract (CVE) for jobseekers aged 60 and over, which encourages hiring older workers by giving employers greater flexibility regarding end-of-career arrangements and a 40% reduction in the employer contribution on retirement payouts. Systematic monitoring and ex‑post evaluation will be needed to ensure these measures remain well‑targeted and effective.
Promoting healthy ageing will also play a key role in people’s ability to participate, with rates of sick leave above the EU average and low spending on preventive care (OECD, 2023[76]) (see section 1.2.5 and Chapter 2). Reducing employer-side barriers will also be key to supporting older workers to participate in the labour market. Promoting age-friendly workplaces, improving ergonomics, and enforcing anti-discrimination measures are key factors in helping older workers remain in employment (OECD, 2025[77]; Martínez Álvarez, 2025[78]). The quality of the work environment can have impacts on older people’s health and wellbeing and affect their decision to stay in the labour market, with the average age-friendliness of jobs in France slightly below an average of 21 OECD countries (OECD, 2026[79]). The October 2025 law transposing the National Interprofessional Agreement on the employment of older workers is a welcome step forward. It is structured around three main pillars: preventing skills obsolescence, notably through enhanced career progression reviews from the mid-career onwards; the introduction of a certified retraining period; and broader access to validation of prior learning. Whilst it is still too early to assess the impact of these measures, their effectiveness will largely depend on their successful implementation by businesses and their ability to intervene sufficiently early, before the risks of workers dropping out of the labour market materialise.
Illustrative OECD simulations suggest that implementing the key recommendations made in this Survey could generate further gains of 4.6% in the level of GDP over 10 years and 10.5% in the long term, through higher employment and productivity growth (Box 1.1). Such gains will further reinforce fiscal consolidation.
The estimated impact of some of the key structural reforms proposed in this Survey is calculated using historical relationships between reforms and growth in OECD countries (Table 1.4). These estimates assume a full and swift implementation of reforms.
Note: Six scenarios are calibrated using empirical evidence: 1) R&D expenditure is increased by 0.5 percentage points of GDP, cumulating into domestic and global knowledge stocks using a perpetual inventory method, with a 17.5% depreciation rate and a 0.135 elasticity to labour efficiency (using estimates from Donselaar and Koopmans (2016)). 2) The PMR score is lowered by 0.07, improving trend labour efficiency and employment, following the estimates of Andrews et al. (2025). 3) The impact of higher digital and AI adoption is calibrated using Filippucci, Gal and Schief (2024[80]) based on conservative assumptions regarding the extent to which AI will replace previous sources of growth, given the high degree of uncertainty. 4) and 5) Employment rates projected by the cohort model for France for older workers (55-59, 60-64, 65-69, 70-74 cohorts), and young people (15-19 and 20-24 cohorts) are gradually converged to those projected for the OECD, raising total employment and potential output. 6) A quality of human capital index, based on PIIAC, is gradually increased by 9%. This raises trend labour efficiency with an elasticity of 0.73, based on the results of Egert, de la Maisonneuve and Turner (2022).
Source: Scenarios using the OECD Global Long-term Model.
1.3.3. Enhancing the anti-corruption framework
Effective anti-corruption frameworks support a strong business environment and the efficient use of public resources. Indicators suggest that France performs above the OECD and EU averages on control of corruption (Figure 1.17, Panel A) and below the EU average on the share of respondents affected by corruption, as indicated by the Eurobarometer Survey on Citizens' perceptions towards corruption (Panel B).
OECD public integrity indicators show that France has relatively strong anti-corruption regulatory frameworks compared to the OECD average (Figure 1.17, Panels C and D). France performs above the OECD average in terms of regulation in six out of eight fields, and particularly strongly regarding lobbying, conflict of interest, political finance, and its strategic framework (OECD, 2026[81]). France’s priorities are based on the Multi-year National Anti-Corruption Plan 2025-2029 and the Roadmap for the fight against fraud in public finance, adopted in 2023. Areas for improvement include that currently no regulation establishes an internal reporting channel for whistleblowers in the judiciary and there are no internal reporting channels within the prosecution service (OECD, 2026[81]).
While France performs well in terms of anti-corruption regulation, it performs less well in practice, where the country performs below the OECD average in five of eight areas (Figure 1.17, Panel C). The national anti-corruption plan does not contain outcome-level indicators to measure achievements on intended results (OECD, 2026[81]). It does, however, establish an interministerial committee responsible for monitoring the progress of the work at a technical level. While France’s regulatory framework for political finance includes all standard regulatory safeguards, not all political parties represented in the national assembly have submitted their annual financial reports within the timelines defined by national legislation (OECD, 2026[81]). Fully implementing the recommendations in the Groupe d’États contre la corruption’s latest evaluation would also further support public sector integrity (GRECO, 2024[82]; OECD, 2024[4]).
France has a robust and sophisticated framework to fight money laundering and terrorist financing that is effective in many respects. It obtains very good results in the areas of terrorist financing investigations and prosecutions, the confiscation of proceeds of crime, and international cooperation (FATF, 2022[83]) (Figure 1.17, Panel E). The Financial Action Task Force (FATF) has, however, recommended that more be done to improve supervision and the implementation of preventive measures. It also noted that a lack of specialised investigators was affecting the duration of investigations.
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. Panel A: World Bank, Worldwide Governance Indicators. Panel B: Data come from the Flash Eurobarometer survey on "Citizens' attitudes towards corruption"; the survey question is: "thinking about these contacts in the past 12 months, has anyone in your country asked you or expected you to give a gift, favour, or extra money for his or her services?". Panel E shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution ¹" refers to money laundering. "Investigation and prosecution ²" refers to terrorist financing.
Source: World Bank Worldwide Governance Indicators; Eurobarometer; OECD Public Integrity indicators database (as of 10 March 2026); and OECD, Financial Action Task Force (FATF).
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