20171208-NATIXIS-What_explains_the_sense_of_poverty_in_France__7页_885kb

Flash Economics: What Explains the Sense of Poverty in France?

Core Content

The document explores the paradox of why many French people feel poor despite relatively favorable economic indicators. It highlights that the sense of poverty in France is not reflected in traditional poverty metrics, such as the proportion of the population below the poverty line or the generosity of the social welfare system. Instead, it identifies two key factors that contribute to this perception: a high household tax burden and increasing housing costs.

Main Points

1. The Perception of Poverty in France

• Many French citizens believe they are poor and have low living standards.
• This perception is not aligned with traditional poverty indicators.
• A survey (Table 1) shows that French people are less satisfied with their future prospects than with their current lives.

2. Income Distribution and Minimum Wage

• In France, income distribution is skewed in favor of wage earners, which is unusual among OECD countries.
• The minimum wage in France is relatively high compared to the median wage.
• These factors suggest that income inequality is not the primary cause of the perceived poverty.

3. Poverty Indicators

• The proportion of the population below the poverty line (60% of median equivalent income) is not particularly high compared to other countries.
• France's social welfare system is generous, covering areas such as healthcare, pensions, and unemployment compensation.

4. Household Tax Burden

• The tax burden on households in France is high and has been increasing.
• This includes income taxes, social contributions, VAT, local taxes, and wealth taxes.
• High taxes reduce disposable income and may contribute to the feeling of financial strain.

5. Housing Costs and Debt

• A significant portion of household income is spent on housing, whether buying or renting.
• Property prices have risen sharply, leading to increased mortgage debt.
• Despite slower rent growth and lower interest rates, housing costs remain a major burden.
• Chart 5 shows that housing-related spending (interest + mortgage repayment + rent) has increased substantially since 2002.

Key Explanations for the Sense of Poverty

• High household tax burden: France has one of the highest tax burdens in the OECD, which reduces the amount of money available for other expenses.
• Rising housing costs: The increasing cost of property and associated debt have placed a heavy financial strain on households, even if their income levels are relatively stable.

Conclusion

The widespread sense of poverty in France is not primarily due to low income levels or high poverty rates, but rather to the combination of a high tax burden and the growing share of income spent on housing. These factors, rather than traditional economic indicators, are likely responsible for the perception of financial hardship among many French citizens.

Disclaimer

• The document is intended for professionals and qualified investors only.
• It is strictly confidential and cannot be disclosed to third parties without prior consent from Natixis.
• The information is for general informational purposes and does not constitute a personalized investment recommendation.
• No liability is accepted for any use or interpretation of the document.
• The views expressed are those of the authors and may not reflect those of Natixis or its affiliates.