Reducing Fiscal Deficit: Canadian Experiment and Lessons for India

The fiscal mess that the Canadian Federal Government got into, following large-scale increase in the fiscal deficits and debt burden resulted in corrective measures since 1984. Introduction of "Spending Control Act" in 1991 and its effective implementation upto 1996 aided in deficit reduction. The process, however, resulted in adverse effects like increased debt burden at the provincial level, caused by cuts in federal transfers during the spending control regime. These developments have large-scale implications on the vertical imbalances in a federation like Canada. Nevertheless the spending control measures and their effective implementation do have good lessons for countries in similar pursuit.