Which Expenditure Saving to Sustain Medium-Term Fiscal Consolidation?

Abstract

France’s fiscal deficit widened markedly during the crisis (from 2.7 percent of GDP in 2007 to 7.5 percent of GDP in 2009). The fiscal consolidation undertaken since 2010 has heavily relied on tax increases and needs to switch to expenditure containment. The purpose of this paper is to identify the areas of expenditure saving that could sustain medium term fiscal consolidation. The first section discusses the size of the fiscal adjustment needed to meet the objective of a balanced budget. The second section draws lessons from international experience with fiscal consolidation for the design of an expenditure-based consolidation in France. The last section identifies possible areas of expenditure saving.