Advanced

The Swedish Fiscal Framework – The Most Successful One in the EU?

Andersson, Fredrik N G LU and Jonung, Lars LU (2019) In Working Papers
Abstract
This paper discusses the history and future of the Swedish fiscal framework. First, we claim that the fiscal framework has contributed to a sharp decline in the debt-to-GDP ratio, from one of the highest to one of the lowest in the European Union. Next, we focus on the future. Despite its success, we argue that the framework is unsustainable. Running large surpluses over the long run is not a steady-state solution. We recommend two changes to the framework. First, that the public pension system is excluded, and second that the Swedish fiscal authorities shift attention from maintaining a budget surplus of 1/3 percent of GDP over the business cycle to sustaining a stable debt-to-GDP ratio of 25 percent of GDP +/- 5 percentage points. A debt... (More)
This paper discusses the history and future of the Swedish fiscal framework. First, we claim that the fiscal framework has contributed to a sharp decline in the debt-to-GDP ratio, from one of the highest to one of the lowest in the European Union. Next, we focus on the future. Despite its success, we argue that the framework is unsustainable. Running large surpluses over the long run is not a steady-state solution. We recommend two changes to the framework. First, that the public pension system is excluded, and second that the Swedish fiscal authorities shift attention from maintaining a budget surplus of 1/3 percent of GDP over the business cycle to sustaining a stable debt-to-GDP ratio of 25 percent of GDP +/- 5 percentage points. A debt anchor at this level will provide sufficient insurance in case of a future major economic crisis judging from recent cross-country evidence. In addition, a debt anchor around 25 percent of GDP would contribute to political stability in time of crises. In a world, where populism and austerity fatigue are rampant, we stress the importance of a fiscal framework allowing successful consumption and tax smoothing in case of major negative shocks to the fiscal space. We conclude with a set of recommendations for the fiscal governance of the EU. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
fiscal policy, fiscal framework, fiscal policy council, financial crisis, debt crisis, consumption smoothing, Sweden, EU, Eucharist, E62, E63, G02, H12, H30, N14, O52, E61
in
Working Papers
issue
2019:6
pages
37 pages
language
English
LU publication?
yes
id
707cb865-6255-4d05-8625-4e674aef81aa
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2019_006.htm
date added to LUP
2019-04-11 14:51:07
date last changed
2019-04-11 14:51:07
@misc{707cb865-6255-4d05-8625-4e674aef81aa,
  abstract     = {This paper discusses the history and future of the Swedish fiscal framework. First, we claim that the fiscal framework has contributed to a sharp decline in the debt-to-GDP ratio, from one of the highest to one of the lowest in the European Union. Next, we focus on the future. Despite its success, we argue that the framework is unsustainable. Running large surpluses over the long run is not a steady-state solution. We recommend two changes to the framework. First, that the public pension system is excluded, and second that the Swedish fiscal authorities shift attention from maintaining a budget surplus of 1/3 percent of GDP over the business cycle to sustaining a stable debt-to-GDP ratio of 25 percent of GDP +/- 5 percentage points. A debt anchor at this level will provide sufficient insurance in case of a future major economic crisis judging from recent cross-country evidence. In addition, a debt anchor around 25 percent of GDP would contribute to political stability in time of crises. In a world, where populism and austerity fatigue are rampant, we stress the importance of a fiscal framework allowing successful consumption and tax smoothing in case of major negative shocks to the fiscal space. We conclude with a set of recommendations for the fiscal governance of the EU. },
  author       = {Andersson, Fredrik N G and Jonung, Lars},
  keyword      = {fiscal policy,fiscal framework,fiscal policy council,financial crisis,debt crisis,consumption smoothing,Sweden,EU,Eucharist,E62,E63,G02,H12,H30,N14,O52,E61},
  language     = {eng},
  note         = {Working Paper},
  number       = {2019:6},
  pages        = {37},
  series       = {Working Papers},
  title        = {The Swedish Fiscal Framework – The Most Successful One in the EU?},
  year         = {2019},
}