The Sequencing of Deficit Reduction and Disinflation in Canada

David W. Baar

Canadian Public Policy, 2002, vol. 28, issue 4, 547-561

Abstract: The costs of not reducing the fiscal deficit prior to monetary disinflation are examined in relation to the Canadian experience under the 1984 to 1993 Mulroney governments. Counter-historical simulations using the FOCUS model show that if the 1986 budget had implemented an aggressive deficit reduction strategy comparable to what was finally implemented in the 1995 budget, the cost of lowering inflation would have been significantly reduced and the federal debt-to-GDP ratio would have been 30 percentage points lower.

Date: 2002
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