Econometrics Journal - Editor’S Report P.12 Ficulties Faced by the Hollande Administration

Royal Economic Society Issue no. 160 Newsletter January 2013 Correspondence Another New Year Letter from France p.3 In the last Newsletter, we speculated on how many readers and contributors would have expected that the consequences of the 2008 financial crisis would still be providing material for debate in these pages four years on. And still it continues. In this issue — Comments and notes in the Letters page and in Alan Kirman’s review of the situation in France which the UK media have Letters to the editor p.18 recently been warning poses a bigger potential for the eurozone than any of ‘peripheral’ countries that have so far commanded attention. Amongst the most interesting features of the French situation is that the response to the crisis has to be managed by an Features avowedly socialist government that one would not The Mirrlees Review of UK taxation p.5 expect to be enthusiastic about the austerity meas- Economic Journal - editor’s report p.7 ures apparently demanded by financial markets. Alan’s letter sheds some interesting light on the dif- Econometrics Journal - editor’s report p.12 ficulties faced by the Hollande administration. Money, macro, finance - The UK tax system is notoriously complex — an 2012 annual conference p.17 issue which has recently come to prominence again in connection with personal and corporate tax avoid- ance strategies. This continues, in spite of repeated Obituaries promises of ‘simplification’ by governments of all Jules Theeuwes p.21 political colour. The ‘Mirrlees Review’ that reported last year maybe an opportunity to remedy this and to Robin Marris p.22 make other improvements. (Unfortunately the histo- ry of this issue causes words like ‘breath’, ‘don’t’ and ‘hold’ to spring to mind). Tony Atkinson, a past- RES news p.24 President of the Society, has contributed an excellent review of the report. In addition, we have the regular annual reports from Conference diary p.26 the editors of the Economic Journal and the Econometrics Journal, together with news, conferences and obituaries. Royal Economic Society Economic Royal ROYAL ECONOMIC SOCIETY Published quarterly in NEWSLETTER January, April, July and October Editor Next issue Prof Peter Howells, Centre for Global Finance, Newsletter No. 161 - April 2013 Bristol Business School, UWE Bristol, Articles, features, news items, letters, reports etc. should be Coldharbour Lane, sent to the Editor by: Bristol BS16 1QY Email: [email protected] 15 March 2013 [email protected] Items concerning conferences, visiting scholars and appointments should be sent to the Administration Officer by: Administration Officer Mrs Amanda Wilman, Royal Economic Society, 16 March 2013 School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK Contributions from readers Fax: +44 (0)1334 462444 Email: [email protected] The Newsletter is first and foremost a vehicle for the dis- semination of news and comment of interest to its readers. Contributions from readers are always warmly welcomed. 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We can normally get them into print within three months of receipt. • United Kingdom £5.00 • Europe (outside UK) £6.50 Visit our website at: • Non-Europe (by airmail) £8.00 www.res.org.uk Designed by Sarum Editorial Services www.sarum-editorial.co.uk www.res.org.uk/view/resNewsletter.html 2 Correspondence Letter from France La France en Difficulté In recent weeks the headlines in France have been dominated by the news of the rich and famous flee- ing the country to avoid the new government’s high rates of tax. In this letter, Alan Kirman looks at the difficulties faced by Francois Hollande and his colleagues in pursuing their own version of ‘austérité’. ECENT HEADLINES SUGGEST that France and the Why the dissatisfaction with the current government’s French Economy are coming apart at the seams. policies? Clearly there was considerable dissonance RThe Economist described France as ‘the time between the campaign promises and the policies currently bomb at the centre of Europe’. The Herald Tribune being put in place. Furthermore, there is notable variance argued that the French had become accustomed to a life within the government. M Montebourg, the minister for style beyond their means. This at a time of crisis in which ‘Redressement productif’, has a particularly intolerant plump and comfortably off politicians in different attitude to some of the foreign companies that have invest- European countries have taken to arguing that now is the ed in France. He announced that he wanted nothing more time for the less well fed and less well off citizens in to do with Mittal the Indian steel maker that threatened to European countries, particularly in France, ‘to tighten close its site in the Lorraine. Boris Johnson the mayor of their belts’. Putting to one side the idea that this attitude London quickly responded by saying that he would wel- may be simply the sublimation of these same politicians' come Mittal’s activities in London. Where he envisaged dietary problems, it is worth looking at the state of the putting the steel plants in London was left to the imagina- French economy and the sort of austerity measures rec- tion. But silliness apart, there was a clear division of prin- ommended. ciple here and one which has been reflected in the recent outcry over how much tax multinational corporations pay Much has happened in France this year, the Socialists have in Europe. Are these businesses wealth creators or are they returned to power with Francois Hollande, the right wing siphoning off resources only to move on as profitability opposition has gone through a sort of mirror image of what declines? This is, of course a debate which is of great happened to the Republican party in the US. The post elec- importance to the left-wing supporters who voted for tion battle for the leadership of the UMP, the main party of Hollande. The government has been ambiguous. The idea the right, was between two social and economic visions, of taxing firms more but to provide them with a tax credit the ‘uninhibited right’ represented by M Copé and a more to diminish the extra charges which are claimed to weigh centrist position occupied by M Fillon the previous prime French firms down was confusing for the average elector minister. In the US, the story was that Romney was and received a tepid welcome from businesses. The basic obliged to move far to the right to win the Republican pri- problem is that the message to the left was an unwelcome mary and then shifted back to the centre to capture the concession to businesses whilst entrepreneurs were not votes from the centre. In France having lost the election happy with the idea of paying more to receive a tax credit with a fairly incomprehensible mix of anti-immigration, in what amounts to two years time. The message was pro-business, but protectionist proposals, the right seems noisy because there is a lot of noise in the attitudes of the to be choosing where to place itself in the spectrum to clar- members of the government. ify its message and to decide whether its future depends on attracting the supporters of the Front National or those in Then there was the ‘competitiveness pact’ this being an the centre. Both of the two candidates have claimed that onslaught on what are thought of as the handicaps to French they won the leadership election and both accuse the other firms’ ability to compete in international markets. Two of fraud. The chairman of the appeals board that decided things are worth observing here. Firstly, it should be obvi- that M Copé had won has just been condemned to a 15 ous that if competitiveness is regarded as being measured months suspended sentence and 2 years of ineligibility for by the balance of trade then this is a zero sum game. But, of elected office. It might be thought that this fratricidal quar- course, improving the French trade balance and becoming rel and the skulduggery that went with it, would have more competitive with the Germans for example, could be destroyed electors’ faith in the UMP. Yet, recent by-elec- achieved in very different ways. If the burden of adjustment tions have shown the UMP doing well, suggesting that the were to be shifted to the surplus countries then higher wages honeymoon with Hollande was of short duration and that in those countries (even with the danger of more inflation of dissatisfaction with Hollande’s policies far outweighed which there is no sign at the moment), then there could be outrage at the behaviour of the right. an improvement with increasing activity in the French econ- 3 www.res.org.uk/view/resNewsletter.html Correspondence omy, still Germany’s most important trading partner. If trade Given the increase in income inequality one might ask, balances are a zero sum game international economic activ- what of the French attitude to the rich. The famous 75 per ity is certainly not such a game. cent top marginal tax rate was a political gesture which as Piketty has pointed out is ineffectual given the current tax But we are told that many of France’s problems are due to system with its complexities and all its possible exemp- the fact that there are structural problems particularly in the tions.

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