An Atlantic Split In Fiscal Policy

Up to now, fiscal restraint has been the rule on both sides of the Atlantic. In the U.S., the combined effects of higher tax rates (in the face of buoyant growth) and big declines in federal outlays, particularly for defense, have slashed the federal deficit from $264 billion in 1993 to about $200 billion in fiscal 1994. But in 1995, with no new major tax hikes in the wings and a sharp slowing in defense cutbacks, the pendulum will swing away from fiscal drag. According to the Congressional Budget Office, fiscal policy will be essentially neutral next year.

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