Economix Blog: How Other Countries Do Deficit Reduction

As noted in my previous post, today’s (failing) deficit “supercommittee” discussions are hardly the first time Congress has engaged in efforts to reduce the deficit. In most of the deals of the last 30 years, tax increases have accounted for a significant portion of deficit reductions.

The same is true across the developed world.

Researchers at the International Monetary Fund have recently put together a comprehensive report on how developed countries have tried to cut deficits in the last three decades.

The study looked only at tax and revenue changes that were passed explicitly to reduce budget deficits, and calculated the total tax increases, spending cuts or both made in each year, as a share of a given country’s gross domestic product.

It found that the typical year that a deficit-reduction plan was in effect, tax increases accounted for reductions equal to about 0.37 percent of a country’s gross domestic product. Spending cuts accounted for reductions amounting to 0.62 percent of a country’s economy. That means spending cuts were about twice as big as tax increases in this group of 17 rich countries.

In the United States, deficit-curbing plans from 1978 to 1998 were about equally reliant on tax increases and spending trims, with each accounting for deficit cuts of about 0.18 percent of America’s gross domestic product in the average year that any austerity plan was in effect.

To look at other countries, I suggest checking out the original report. A detailed chronology for each country begins on Page 6. On Pages 86 and 87 you can find a table summarizing all the data, which I’ve also adapted below (after the jump). Note that the monetary fund researchers decided to exclude the Balanced Budget Act of 1997 and the Taxpayer Relief Act of 1997.

Article source: http://feeds.nytimes.com/click.phdo?i=572aba42f2235d260f98fc9656e55357