The sequencing of economic reforms, theory and application to Canada

by Baar, David William

A theoretically optimal sequence for implementing policies of deficit reduction, disinflation, trade liberalization, and microeçeonomic structural refom is established for OECD-type economies. The goal of the policy reforms is to move from a partially regulated, moderate inflation, large structural fiscal deficit environment, to a situation with minimal price and inflationary distortions and rough fiscal balance. The Canadian economic reform sequence under the 1984 to 1993 Mulroney governments is considered. Some of the costs associated with differences between the economically optimal sequence and the path taken by the Mulroney governments are then examined. In particular, attention is given to the failure to reduce the fiscal deficit prior to monetary disinflation and the liberalization of trade at a time when monetary policy was driving the Canadian dollar higher, sales tax reform had been delayed, and labour market policies had remained unchanged. David Baar + The Sequencing of Economic Reforms: Theory and Application to Canada page ii