Best in Class: Public Finances in Sweden During the Financial Crisis

TY - JOUR

T1 - Best in Class

T2 - Public Finances in Sweden During the Financial Crisis

AU - Bergman, Ulf Michael

N1 - JEL Classification: E02, E61, E62, E65

PY - 2011

Y1 - 2011

N2 - This paper studies why public finances in Sweden have remained very strong during the current financial crisis. Unlike almost all other European countries, Sweden has had budget surpluses and a government debt ratio around 40 percent of GDP during the recent crisis. We attribute this to two important factors. First, Sweden entered the crisis with strong public finances and second that unemployment did not rise as much as normally during recessions. The Swedish fiscal framework that was introduced after the banking crisis in the early 1990s with expenditure ceilings, a top-down budget process, balanced budget requirement for local governments has played an important role. We show that the behavior of budget deficits has changed significantly recently, from a deficit bias to a surplus bias. Aggregate demand remained strong during the crisis even though exports fell sharply. As unemployment in the manufacturing sector increased, it was to a large extent offset by increased employment in the service sector.

AB - This paper studies why public finances in Sweden have remained very strong during the current financial crisis. Unlike almost all other European countries, Sweden has had budget surpluses and a government debt ratio around 40 percent of GDP during the recent crisis. We attribute this to two important factors. First, Sweden entered the crisis with strong public finances and second that unemployment did not rise as much as normally during recessions. The Swedish fiscal framework that was introduced after the banking crisis in the early 1990s with expenditure ceilings, a top-down budget process, balanced budget requirement for local governments has played an important role. We show that the behavior of budget deficits has changed significantly recently, from a deficit bias to a surplus bias. Aggregate demand remained strong during the crisis even though exports fell sharply. As unemployment in the manufacturing sector increased, it was to a large extent offset by increased employment in the service sector.

U2 - 10.2298/PAN1104431B

DO - 10.2298/PAN1104431B

M3 - Journal article

SN - 1452-595X

VL - 58

SP - 431

EP - 453

JO - Panoeconomicus

JF - Panoeconomicus

IS - 4

ER -