The Deficit and the Economy:

An Update of Long-Term Simulations

AIMD/OCE-95-119: Published: Apr 26, 1995. Publicly Released: Apr 26, 1995.

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Pursuant to a congressional request, GAO provided information on the long-term economic impacts of the budget deficit.

GAO found that: (1) some progress has been made in reducing the deficit since 1992, but the long-term deficit outlook remains a national problem; (2) inaction in reducing the deficit would inevitably result in a declining economy; (3) although taking action to reduce the deficit would promote long-term economic growth and reduce interest costs, such action would require significant budget adjustments; (4) early reductions in fast growing areas, such as health programs, would contribute more to the elimination of long-term deficits than other types of spending reductions; (5) even after a balanced budget is achieved, deficits could continue to emerge as demographic changes exert fiscal pressures; and (6) Congress faces difficult tradeoffs between the short- and long-term economic benefits of deficit reduction.

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