Fredrik N G Andersson
Associate professor
The Swedish Fiscal Framework – The Most Successful One in the EU?
Author
Summary, in English
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.
Department/s
- Department of Economics
Publishing year
2019
Language
English
Publication/Series
Working Papers
Issue
2019:6
Links
Document type
Working paper
Topic
- Economics
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
Status
Published