Deficit Reduction: Lessons from Around the World

Looking ahead to this week's G-20 Summit in Pittsburgh, among the critical issues will be how the U.S. and its G-20 partners must put their fiscal houses in order and their budgets on a sustainable path over the next decade before the Baby Boom retirement tsunami hits full force.

In a new paper, the Fiscal Roadmap Project (FRP) of the Committee for a Responsible Federal Budget (CRFB) looks at the need for the U.S. to adopt a medium-term deficit reduction program over the next ten years, to be applied once the economy is on firmer footing.

To provide models for U.S. policy going forward, the paper examines deficit reduction in other countries over the past 30 years and lessons for the United States.  The lessons are:

Lesson 1: Countries with weak fiscal credibility should establish a deficit reduction plan.

Lesson 2: The announcement of a credible deficit reduction plan can have positive effects on consumers, businesses, and financial markets.

Lesson 3: The most successful plans have involved large adjustment over many years.  The composition of the plans has varied.

Lesson 4: A fiscal consolidation plan should be phased in gradually. (Deficit reduction is also known as "fiscal consolidation".)

Lesson 5: A crisis can make it easier to adopt fiscal consolidation.

Lesson 6: It is preferable to make fiscal adjustments on your own terms before they are forced upon you by creditors.

For details, see the FRP/CRFB paper "Deficit Reduction: Lessons From Around the World".

Please contact Kate Brown with media requests at 202-213-7051 or brown@newamerica.net.

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Learn More About: Maya MacGuineas
Related Programs: Committee for a Responsible Federal Budget, Fiscal Policy Program
Topics: Fiscal Policy