EUROPEAN FISCAL HARMONIZATION AND THE FRENCH ECONOMY

The implications of European fiscal harmonization for the French econo my are examined using a general equilibrium model. The model extends t he overlapping generations, simulation model developed by Auerbach and Kotlikoff in three ways: a well-developed external sector is included ; households face constraints in their borrowing; and the population c omprises "rich" and "poor" households with different labor productivit ies. The harmonization policy that involves cuts in VAT and savings ta xes leads to welfare losses for both rich and poor approximately equiv alent to 1 percent of GDP.