Published by L\u2019Opinion on June 16<\/p>\n\n\n\n
Economic and social policy cannot be dissociated. Their interactions can produce positive effects \u2014 or disastrous ones \u2014 sometimes contrary to their initial intentions. France provides a striking illustration. Despite having one of the highest levels of taxation and redistribution in the OECD, the temptation to increase both remains strong.<\/p>\n\n\n\n
Yet, such a trajectory would jeopardize employment, competitiveness, entrepreneurship, and the incentive to work. And it is precisely employment, allied with growth, that is the most effective tool against poverty, for social mobility, and for the sustainability of both our standard of living and our social protection system. Social well-being cannot be preserved or improved over the long term without the development of a strong economy.<\/p>\n\n\n\n
The ever-increasing debt-to-GDP ratio can only lead, sooner or later, to a major economic, social, and financial crisis. We must beware of the uncontrolled \u2014 and thus highly dangerous \u2014 dynamic in which we currently find ourselves. From 1997 to 2024, France\u2019s debt ratio increased by 50 percentage points of GDP, while the euro area\u2019s rose by only 15 points.<\/p>\n\n\n\n
The ever-increasing debt-to-GDP ratio can only lead, sooner or later, to a major economic, social, and financial crisis. We must beware of the uncontrolled \u2014 and thus highly dangerous \u2014 dynamic in which we currently find ourselves. From 1997 to 2024, France\u2019s debt ratio increased by 50 percentage points of GDP, while the euro area\u2019s rose by only 15 points.<\/p>\n\n\n\n
The same applies to the relationship between supply and demand. While demand growth is essential for a strong economy, it cannot be sustained if national supply does not grow in parallel. France already faces a persistent trade deficit \u2014 a symptom of insufficient competitiveness. Increasing demand without restoring supply would worsen this vulnerability, deepening financial dependence on foreign partners.<\/p>\n\n\n\n
We will not escape the French trap by increasing taxes further. On the contrary, we must revive our productive dynamism.<\/p>\n\n\n\n
It would be a mistake to believe that activist fiscal policy, financed through ever-higher taxes or debt, can generate lasting prosperity. Quite the opposite. Across OECD countries, long-term growth is slightly negatively correlated with the ratio of public spending to GDP. This does not call into question the importance of countercyclical fiscal policy, but it does contradict the all-too-common French belief that every problem must and can be solved by ever more public spending. Beyond a certain threshold \u2014 already exceeded in France \u2014 the effect becomes counterproductive.<\/p>\n\n\n\n
We must therefore reverse the logic. Further tax hikes will not solve the French dilemma. Instead, we must reignite productive momentum: invest in technological and environmental innovation, make work more attractive, remove barriers to social mobility, encourage business growth by lowering taxes and excessive regulation, improve education system efficiency, and raise employment rates \u2014 especially among youth and people aged 60 to 65.<\/p>\n\n\n\n
It is this strategy \u2014 combined with lower public spending and more effective use of it \u2014 that will increase our growth potential and broaden the tax base, thus boosting public revenues without raising tax rates. Any other choice would only worsen the vicious circle: more burdens on an already weakened economy, less wealth creation, further tax increases to offset a shrinking base \u2014 and so on, endlessly. This would damage both the economy and the social fabric. Weakening the economy inevitably undermines the very social model we aim to protect.<\/p>\n\n\n\n
Olivier Klein is Professor of Economics at HEC Paris.<\/p>\n","protected":false},"excerpt":{"rendered":"
Published by L\u2019Opinion on June 16 Economic and social policy cannot be dissociated. Their interactions can produce positive effects \u2014 or disastrous ones \u2014 sometimes contrary to their initial intentions. France provides a striking illustration. Despite having one of the highest levels of taxation and redistribution in the OECD, the temptation to increase both remains […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[136],"tags":[],"class_list":["post-10077","post","type-post","status-publish","format-standard","hentry","category-economical-policy"],"acf":[],"yoast_head":"\n