Deficit Reduction:

Experiences of Other Nations

AIMD-95-30: Published: Dec 13, 1994. Publicly Released: Dec 13, 1994.

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Pursuant to a congressional request, GAO reviewed the deficit reduction experiences of six nations, focusing on: (1) the reasons that these governments implemented fiscal austerity policies; (2) the budget actions these governments took to reduce their deficits; (3) how these governments achieved political agreement to implement these fiscal actions; and (4) the lessons learned from these governments' experiences.

GAO found that: (1) the six nations often instituted austere measures to reach fiscal balance and maintain political support; (2) although the six governments eliminated only a few programs, control of spending was their dominant fiscal policy; (3) revenue growth contributed significantly to deficit reduction efforts in some countries; (4) the factors that prompted the governments to adopt deficit reduction strategies included the fear of an economic crisis, eventual negative external market reaction, and changing inflation and interest rates; (5) government leaders used the fear of an economic crisis to create a sense of urgency for deficit reduction; (6) the six governments believed that effective consensus-building was essential to building public support and implementing successful fiscal change; (7) the six governments were able to reduce the impact on beneficiaries by prioritizing and targeting spending cuts, pursuing shared sacrifice strategies, and phasing in the reductions over time; (8) although significant structural improvement in fiscal policy is possible in modern democracies, such progress is difficult to sustain; and (9) despite obvious cultural, political, and economic differences, these nations' experiences may be of value to the United States as it addresses its fiscal problems.

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