Unformatted text preview: les but is simpler. Special aid for teachers offsets the costs borne by the communes to house teachers. Aid and grants for amenities (34 billion francs)
— Overall aid for amenities (DGE) is a project-based subsidy granted to communes with fewer than 20 000
inhabitants and to groups of communes with over 20 000 inhabitants. It takes the form of an aid fund and
changes in keeping with the price of the GFCF of administrations.
— 232 The VAT compensation fund (FCTVA) approximately compensates the VAT paid by local authorities on their
capital equipment purchases. Commission on Fiscal Imbalance ♦ Compensation aid for the transfer of jurisdictions (25 billion francs) Since 1982, transfers of jurisdictions from the State to local authorities have been funded either by means of tax
transfers from the State or through aid:
— ♦ General decentralization aid (DGD), aid for occupational training and aid for Corsica change in the same
manner as the DGF and benefit the regions, departments and communes.
Regional aid for school facilities (DRES) and departmental aid for college facilities (DDEC) benefit the
regions and departments, respectively, and change in the same manner as the price of the GFCF of the
administrations. Compensation for administrative exemptions and abatements The State imposes constraints on the fiscal choices of local authorities, e.g. the ceiling on the business tax, the business
tax abatement for companies that invest or hire, the abatement or exemption from the housing tax for low-income
earners, and so on.
To compensate local authorities that consequently have lower fiscal capacity, the State has at its disposal two budgeting
techniques, abatements and compensation.
In the case of abatements (60 billion francs in 1998), the State takes the place of the local taxpayer in respect of whose
tax it provides relief and fully compensates the local authority for the fiscal shortfall regardless of the rate that the
authority has voted. Against a backdrop of this “moral hazard,” the communes have every interest in increasing the rates
since the State will supplant the local taxpayer. The budgetary risk for the State is also apparent as it is contending with
a fiscal subsidy (an “open tax expenditure”).
In the case of “exemption compensation,” the State funds the fiscal shortfall by paying monetary compensation that is
added to the taxes levied by the local authority. The amount of such compensation is independent of the tax rate voted
by the local authority, e.g. the compensation is calculated according to the tax base of the exempted taxpayer multiplied
by the rate in effect at the time the compensation was implemented. In this way, the State protects itself against the “rate
risk.” In some instances, it even protects itself against the “base risk” by freezing the amount of the compensation
calculated on the tax base and the rate in force the year the measure was introduced. This technique makes it possible
to transform the corresponding tax expenditure into a “closed-ended” subsidy.
♦ Macroeconomic management of State aid
En 1995, the French government committed itself to ensuring that a portion of the financial aid paid to lo...
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