Compare the Fiscal Policy of France and European Union (Essay Sample)

FISCAL POLICY IN FRANCE AND EU
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Analysis of the fiscal policy in France and EU
Introduction
Fiscal policy refers to the involvement of governments in changing spending and taxation levels to influence the level of economic activity and aggregate demands (Jha, 2013). Fiscal policies are meant to stimulate growth of economies during recession periods (Działo, 2012). In addition, fiscal policies aim at keeping inflations low besides establishing economic growth ('Fiscal policy', 2013). This paper investigates into the fiscal policy system in France and compare the existing strategies to the European Union countries (Działo, 2012). The British economist who developed fiscal policy concept, John Maynard Keynes also referred to it as Keynesian economics.
Keynes theory states that governments are capable of influencing levels of macroeconomics by either decreasing or increasing public spending and tax levels (Jha, 2013). The result is to curb possible inflation, maintain healthy money value and increase employment to citizens ('Fiscal policy', 2013). In the recent years France alongside most EU countries such as Germany, Italy and Netherlands witnessed an increased accumulation of public debt (Antipa & Schalck, n.d.). Whereas the trend began declining after the Growth and Stability pact imposed by the Maastricht Treaty, debt and public expenditure remain to be high by the international standards ('Fiscal policy', 2013). The aforemtioned are poignant sources of concern to economists and policymakers especially with the increasing increase in the aging population that is increasing spending on healthcare and pensions. Further reduced labor force is likely to impact on tax base and economic growth.
In practice, it is politically difficult to reduce government debt and public spending since the process may affect some sections of the political divide (Jha, 2013). To help in overcoming the unforeseeable difficulties, most countries are adopting the formal fiscal rules, for instance multiyear frameworks or balanced-budget rules that reduce discretions in fiscal policies (Creel, Monperrus-Veroni & Saraceno, 2009). The rule proponents also argue that medium-term commitment plans in public financing eases withdrawal pressure from fiscal authorities and enable them withstand delayed fiscal adjustments and higher spending pressures ('Fiscal policy', 2013).
Further, critics mention that rules may inhibit the government’s ability to express skeptics and manage countercyclical fiscal policies effectively (Fossati & Panella, 1999). According to most economic critics, fiscal rules are likely to constrain the government’s ability of expressing skeptics and running countercyclical fiscal policies due to the left scope on creative accounting (Creel, Monperrus-Veroni & Saraceno, 2009). The present work therefore studies the fiscal rule systems in France and compares the system to countries within the European Union (EU) (Działo, 2012). In different aspects, the EU countries are facing extensive challenges in public finance and public debt (for instance Italy) .
The case in France
The European Union has currently harmonized its fiscal policy hence resulting into a large extent of labor migration (Antipa & Schalck, n.d.). The migration has typically been realized from the former Soviet Union countries within Eastern Europe into larger and more developed Western European Economies. For instance, France and Britain have both realized the labor influx hard hitting the respective economies ('Fiscal policy', 2013). In addition, one major change that France made in its Fiscal policy in 2011 was the introduction of bonus to consumers who imported or purchased vehicles that emitted low carbon dioxide amounts (Jha, 2013). From the policy information gathered, it was predicted the amount of bonus from government was directly proportional to the carbon dioxide amounts released by the vehicle for every kilometer. Consequently, the highest bonus for vehicles that produced not more than 110g of carbon dioxide for every kilometer was EUR, 2000 (Działo, 2012). The fiscal policy is meant to increase the demands for vehicles that emit low amounts of carbon dioxide into the atmosphere (Creel, Monperrus-Veroni & Saraceno, 2009).
The policy is however increasing government spending towards consumer’s thereby posing the risk of increased government debt and rise in inflation rates ('Fiscal policy', 2013). The policy is also capable of increasing the spending of consumers and increasing profits from dealerships (Afonso, n.d.). That is, it will be a guarantee for dealerships in French motor vehicle industry to use the policy in advertising their low carbon dioxide emitting vehicles to consumers On the other hand, the policy will help the business of hybrid vehicles cause availability of jobs in the country (Działo, 2012).
Further, France has developed an abnormally extensive labor redistribution program with relatively huge tax rates ('Fiscal policy', 2013). The aforemtioned has realized great importance in economic growth for labor migration out of France to other countries (Creel, Monperrus-Veroni & Saraceno, 2009). Furthermore, the tax rates in France are considerably higher than those stipulated in Britain resulting in continuous outflow of workers from France to Britain and other European Union countries (DziaÅ‚o, 2012). Workers therefore receive huge income disposals from the lower rates on tax. Similarly, with respect to the economic theory, varying redistribution policies besides inducing net donors with an aim of leaving the country, should result in increased net receiver’s inflow (Jha, 2013). The abnormally large welfare system in France makes it appealing for migration of net benefactors into the country (Schneider & Zápal, 2006).
The aforesaid is continuously draining the tax system in France (Creel, Monperrus-Veroni & Saraceno, 2009). The citizens responsible in financing the French redistributive policies are also leaving the country in an effort of establishing themselves in EU countries with less tax burden ('Fiscal policy', 2013). The end result is reduced financers of programs’ population size in France. Likewise, corporations and workers who need the assistance of the government migrate into the country hence increasing the financing amounts needed in redistribution program implementations.
With regards to the foreseeable problems, it is in the benefit of the French government to push for compliance with harmonization of fiscal policy among EU countries (Antipa & Schalck, n.d.). The compliance would help realize induced efficiency in resource allocation as production factor into regions with fair comparative advantage instead of mere tax breaks or number of subsidies. In addition, the compliance with fiscal policy harmonization with help discourage drain elimination on the tax system of France resulting from labor migration both from and into France (Creel, Monperrus-Veroni & Saraceno, 2009).
On the other hand, it is significant to realize that France, within its large party of socialists, is very fond of extensive systems of welfare ('Fiscal policy', 2013). The autonomy loss from harmonizing fiscal policy may force the country to reduce various redistributive policies. The aftermaths may be political backlash for France. However, since the advantages from effectively harmonizing EU fiscal policy will outweigh the disadvantages, it is prudent to pursue the harmonization (Działo, 2012). In light of possible friction in politics, the pursuit should be accomplished with greater extent of prudence (Creel, Monperrus-Veroni & Saraceno, 2009). For instance, before making any large scale changes in fiscal policy, the preferences and taste of French citizens in regards to their governments role in developing the economy should be addressed as well.
Comparing France to EU countries
This section will analyze the growth friendly expenditures and public finance in France and EU countries, taxation, public finance sustainability and the healthcare and health systems within the a section of the EU member states. France and other EU countries such as Netherlands and Australia are considered wealthy because of previous sensible institutions and government policies ('Fiscal policy', 2013). While most of the federal governments are crippled by lack of well-functioning market economies, France have enjoyed several years of economic growth thanks to the rule of law and property rights (Coricelli, 2004). The current EU fiscal context aims at sustaining fiscal adjustment requirements that are likely to be obtained from decreasing public expenditure such as GDP shares while increasing public revenues among member countries (Jha, 2013). On the other hand, the French government, in 2014, prioritized investment as the country’s most significant development to increase its public revenues. It is also clear that countries within the EU need to better their economic performance through job creation in the coming years. For instance Greece, during the 1996-2011 period, was characterized by maximum public deficit levels at 8.91 of its GDP (Antipa & Schalck, n.d.). The aforemtioned country had only 4 instances of fiscal adjustments in 1998, 2005, 2010 and 2011 (Antipa & Schalck, n.d.).
Presently, the EU fiscal frameworks are streamlined towards achieving long and medium-term balances close to zero. En route, yearly deficits are focused towards following the declining paths, as stipulated in every Stability Program of the 28 EU countries (Coricelli, 2004). The EU federal governments are spending huge amounts of money in streamlining their fiscal policy with the aim of reducing government ...