Tax cuts or social investment? Evaluating the opportunity cost of French employment strategy

Abstract

Tax expenditures are widely used by French governments as employment and social policies. Such programmes together amounted to more than 1.3 points of GDP in 2011. Thanks to a systematic review of academic policy evaluations, we assess the efficiency of the different parts of such policies, showing that at least €6 billion is used for policies whose cost is greater than €62,500 per year and job created, and €0.5 billion for policies whose cost is greater than €160,000 per year and job created. We examine the replacement of these tax expenditures by direct public funding for (publicly or privately delivered)-quality‖ jobs addressing specific social needs. We discuss the conditions under which at least comparable employment performances could be achieved (factoring in the crowding out of privately funded jobs and the properties of created jobs in terms of the service provided or the characteristics of suppliers and consumers) as well as any positive economic and social externalities.

Growth Strategies and Welfare Reforms in Europe

“…Household consumption is maintained by a relatively generous wage policy, in particular through the minimum wage. However, since the late 1980s, many economists and employers' representatives have complained about the cost of labor and have pushed governments to lower non-wage labor costs (Palier 2005, chapter 7;Carbonnier et al 2016). Since net wage moderation risks stunting growth and triggers social unrest, non-wage labor costs have become the target of the economic strategy of French governments, implemented through incremental and partial welfare retrenchment and many exemptions to employers' social security contributions.…”

“…to lower the level of social security contributions, especially for the low-paid (before exemptions, social contributions account for 60% of the firm's cost of labor). Both conservative and socialist governments have pursued this strategy (Askenazy 2011;Carbonnier et al 2016). They first aimed to compensate for labor costs that minimum wages represent for firms employing people in low-skilled jobs.…”

“…With an overall cost of around €50 billion per year (Carbonnier et al 2016), this tax and social contribution exemption strategy is increasing the public deficit and debt without triggering strong growth or the creation of good jobs. Yet, it continues to be the main economic instrument used by the government to boost firms' competitiveness.…”

From the hidden welfare state to the hidden part of welfare state reform: Analyzing the uses and effects of fiscal welfare in France

“…However, since the end of the 2000s, the large cost of these schemes has started to attract criticisms in the public debate, as various evaluations have pointed to several drawbacks. First, these policies tend not to be very cost‐effective, due to important windfall effects (Carbonnier, Palier, & Zemmour, ). Second, this policy is accused of fostering the development of low‐quality jobs, by diminishing their relative costs compared to jobs with higher added value (Gafsi, L'Horty, & Mihoubi, ).…”

“…Crucially, the continued pursuit of that policy strategy has meant that the French economic debate largely concentrated on issues of “structural reform” of the labor market, while substantive strategic questions, such as the opportunity of investing in the development of leading economic sectors (Askenazy, ) or of reorienting public resources and jobs towards a social investment strategy (Morel, Palier, & Palme, ) were being ignored. These alternative strategies could have similar employment outcomes (Carbonnier et al, ), while being associated with much better economic and social effects. Yet, the fiscal welfare strategy is far from being abandoned: the newly elected Macron government has already announced plans to implement new STEs in the presentation of its 2018 Budget.…”