Taxation in France - Recent Evolution

Recent Evolution

The evolution of the level of the tax burden since the early 70s can be divided into three distinct phases. First, during the 70s and in the first half of the 80s, the tax rate has increased from 34% to 42%. Then it stabilized at a rate close to 42% until the early 90s, when it resumed its growth rate to the historical height of 44.9% in 1999. Since then, the rate of PO government has declined slightly to between 43% and 44% of the GDP.

Over the last decades, the distribution of tax burden between the three main administrations has changed significantly. The share allocated to the state has tended to decline, while that allocated to the social security institutions and local governments has grew. The higher tax rate of social security is due to the general upward trend of social spending, particularly the higher spending on pension and health insurance system. The pension expenditure grew from 11% of the GDP in 1981 to 13% in 2007, and health spending increased from 6% of the GDP to 10% in 2006 over the same period.

In this context, the structure of the funding of the social security administrations has been more and more assured by taxes rather than social contributions. In particular, new taxes were levied to help fund the social security administrations, such as the general social contribution (CSG) and the contribution for the repayment of the social debt (CRDS). More recently, the central government has help funding the social security administrations by the revenues from the excise on alcohol and tobacco, in part to offset reductions in social contributions. As for the growth of the revenues for the benefit of local administrations, it is only due to the devolution, begun with the 1992 laws, and continued with the reforms in 2003.