President Hollande, Friend of Monaco

As most probably know there was recently a new President of the French Fifth Republic elected, the socialist candidate Francois Hollande. Governments struggling to cope with the massive debt crisis in Europe have learned one thing: people like their benefits and don't like austerity measures that would cut back state expenditures. So, Francois Hollande swept to victory on a platform of more government spending instead of less and higher taxes to pay for it all. So, no cut backs but an increase to a 45% tax rate on incomes from 72,000 to 1 million euros and, this is the big one, a 75% tax rate on anyone making over a million euros. The campaign of Hollande was largely based on class resentment of the rich and the promise to make the wealthy "pay their fair share" (something which should sound very familiar to Americans). Of course, compared to the United States, income taxes in France were already extremely high on the wealthy (movie star Will Smith was aghast when told the rate in a French interview) and many well off French citizens have been leaving their republic for some time because of that. This is how President Hollande is a friend of Monaco.

Law firms in France have been flooded with calls since the election of Hollande from high-earners wondering if they should join the exodus and flee French taxes. Lawyer Vincent Grandil said that not all of these are people one would usually think of as the "wealthy elite", "Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing". High-income citizens have already been looking for ways to shift their income around and more and more are or are planning to leave France completely. Where do they go? Well, of course, the beautiful, sunny Principality of Monaco right on their southern coast with no income taxes is a very popular destination and, of course, Monaco is happy to have them. Being the second-smallest country in the world, Monaco, cannot, of course, accomodate everyone and in the past France has used her influence to obtain agreements with Monaco to avoid French people relocating there to avoid taxes. However, long ago Monaco adopted the policy that having a wealthy population is a good thing and while other countries, like France, impose tax penalties on the rich, Monaco has worked to welcome them to the principality. If not Monaco though, perhaps the wealthy French will sail their yachts to Florida or Texas or some other place with a comparitively miniscule tax on their earnings.

In any event, it is an interesting contrast between France and Monaco. The two countries, simply by being so close together and having such a long history of close association, have a great deal in common. Yet, one is a (very republican) republic with very high taxes on the wealthy while the other is a monarchy (where the monarch still has the last word) with very low taxes for everyone and a more pro-investment environment. Students of economic systems could find a great deal to learn in studying these two very different systems in such close proximity and how each country prospers under the system they have.