Roads to Success: Budget Consolidations in OECD Countries

Abstract

During the 1990s, some OECD countries succeeded in reducing their budget deficits. The average public debt ratio fell from more than 70 per cent of GDP in 1996 to about 63 per cent of GDP in 2001. Up to now, researchers have mainly focused on the economic effects of these consolidation efforts. This paper answers another question: How can balanced budgets be achieved? By means of a detailed review of nine budget consolidations, the study identifies different roads to successful fiscal adjustments, starting with a critical review of the definition of budget consolidation. We find a pattern on the expenditure side that follows different worlds of the welfare state. On the revenue side however, the tax structure seems to be more path-dependent and mainly driven by long-term developments. In the last section, we show that institutional reforms constitute very important components of budget consolidations.