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JAPAN
France's
economic freedom score is 63.3, making its economy the 64th freest in the
2009 Index. Its overall score fell 1.4 points due to decreases in six of
the 10 components of economic freedom. France is ranked 28th out of 43
countries in the Europe region, and its overall score is higher than the
world average.
France scores above the
world average in six of 10 economic freedoms and is especially strong in
business freedom, property rights, and freedom from corruption. As a
member of the European Union, it has a standardised monetary policy that
yields relatively low inflation despite agricultural distortions. In
general, contracts are strong, and property is protected by the
transparent rule of law.
France's fiscal freedom
and government size scores remain weak. Its welfare state is sustained by
high taxes and government expenditures, as in many other European social
democracies. Government spending equals almost 50 per cent of GDP. The
labor market operates under multiple restrictions. The financial sector is
being deregulated, but the state remains actively involved in many aspects
of the economy.
Background
In 2008, France
celebrated the 50th anniversary of its fifth attempt at democratic
republican government since the French Revolution. France was a founding
member of the European Union, and French leaders across the political
spectrum have championed European integration. The presence of a sizable
and largely unassimilated Muslim minority has led to ethnic tension and
violence. France has a diversified, modern industrial economy and fertile
agricultural land, but economic decision-making is highly centralised.
France is also a major recipient of agricultural subsidies under the EU's
Common Agricultural Policy. The government failed to enact serious market
reforms in the 1990s, and the economy has suffered significantly. With
France facing chronic unemployment, lack of growth, and escalating social
disorder, conservative Nicolas Sarkozy was elected president in 2007 on
the promise of pro-market reforms.
Business freedom 87.4%
France's regulatory
environment allows relative freedom to conduct business. Starting a
business takes an average of seven days, compared to the world average of
38 days. Obtaining a business license requires less than the world average
of 18 procedures and 225 days. Closing a business is relatively easy.
Trade freedom 80.8%
France's trade policy is
the same as that of other members of the European Union. The common EU
weighted average tariff rate was 2.1 per cent in 2005. Non-tariff barriers
reflected in EU policy include agricultural and manufacturing subsidies,
import restrictions for some goods and services, market access
restrictions in some service sectors, non-transparent and restrictive
regulations and standards, and inconsistent customs administration across
EU members. Lack of transparency in standards and regulations, barriers to
service market access, and pharmaceutical restrictions exceed EU policy
benchmarks. Fifteen points were deducted from France's trade freedom score
to account for these factors.
Fiscal freedom 50.9%
France has high tax
rates. The top personal income tax rate is 40 per cent. The top corporate
tax rate is 34.4 per cent (33.3 per cent plus a 3.3 per cent surcharge, up
from 1.5 per cent as of 2008). This surcharge is applicable only to
companies with turnover exceeding a certain threshold. Other taxes include
a value-added tax (VAT) and a household wealth tax. In the most recent
year, overall tax revenue as a percentage of GDP was 46.1 per cent.
Government size 14.5%
Total government
expenditures, including consumption and transfer payments, are very high.
In the most recent year, government spending equaled 53.4 per cent of GDP.
State-owned or state-controlled enterprises dominate such industries as
postal services, electricity, and rail. Semi-public companies in which the
state holds shares employ almost 4 per cent of the labor force.
Monetary freedom 71.7%
France is a member of
the euro zone. Between 2005 and 2007, France's weighted average annual
rate of inflation was 1.7 per cent. As a participant in the EU's Common
Agricultural Policy, the government subsidises agricultural production,
distorting the prices of agricultural products. Prices of pharmaceuticals,
books, electricity, gas, and rail transportation are regulated. Ten points
were deducted from France's monetary policy score to adjust for measures
that distort domestic prices.
Investment freedom 60.0%
While there is no
generalised screening of foreign investment, legislation requires prior
approval for acquisitions or investments in a variety of sensitive or
strategic sectors, including public health, defense, or casinos. Foreign
investment is restricted in sectors like agriculture, aircraft production,
air transport, audiovisuals, insurance, and maritime transport. The
process of deregulation is far from complete, and the state remains very
involved in the economy. Foreign firms need government approval on a
variety of regulatory issues, but regulations are fairly transparent.
Residents and non-residents may hold foreign exchange accounts. There are
no restrictions or controls on payments, transfers, or repatriation of
profits, and non-residents may purchase real estate.
Financial freedom 70.0%
France's financial,
regulatory, and accounting systems are somewhat burdensome but consistent
with international norms. Overall, the modern banking system provides a
full range of financial services. Most loans are provided on market terms.
The government has sold its majority stakes in most financial institutions
but still owns the Caisse des Depots et Consignations and holds minority
stakes elsewhere. In 2007, foreign credit institutions accounted for about
11 per cent of total bank assets. France is the world's fourth-largest
insurance market, and foreign companies held 21.5 per cent of the market
in 2004. The government owns stakes in several insurance companies.
Capital markets are well developed, and foreign investors participate
freely. There are no foreign exchange controls.
Property rights 70.0%
Contractual agreements
are secure, and the judiciary and civil service are professional, though
bureaucratic entanglements are common. Any company defined as a national
public service or natural monopoly must pass into state ownership.
Protection of intellectual property rights is strong.
Freedom from corruption
73.0%
Corruption is perceived
as minimal. France ranks 19th out of 179 countries in Transparency
International's Corruption Perceptions Index for 2007. France enforces the
OECD Anti-Bribery Convention domestically through amendments to its
criminal code.
Labour freedom 54.5%
Burdensome labour market
regulations hamper employment opportunities and productivity growth. The
non-salary cost of employing a worker is very high, and dismissing a
redundant employee can be relatively costly. Restrictions on the number of
work hours remain rigid.
Courtesy: The Heritage
Foundation
Quick Facts
Population
61.4 million
GDP (PPP)
$2.0 trillion
2.0% growth
1.7% 5-year compound
annual growth
$31992 per capita
Unemployment
8.3%
Inflation (CPI)
1.6%
FDI Inflow
$81.1 billion
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