EconPapers    
Economics at your fingertips  
 

The Swedish industrial support program of the 1970s revisited

Bo Carlsson (), Gunnar Eliasson () and Karolin Sjöö ()
Additional contact information
Bo Carlsson: Case Western Reserve University
Gunnar Eliasson: Royal Institute of Technology (KTH)
Karolin Sjöö: Lund University

Journal of Evolutionary Economics, 2018, vol. 28, issue 4, 805-835

Abstract: Abstract The economy-wide dynamic cost-benefit study of the Swedish industrial subsidy program 1976 through 1984 (Carlsson et al. Res Policy 10(43):336–354 1981; Carlsson J Ind Econ 32(1):9–14, 1983a, b) is revisited in light of later economic development. Since the Swedish Micro to Macro model (Eliasson Am Econ Rev 67(1):277–281 1977a, 2017a) was used for quantification, this article is both (1) a study on the calibration of high dimensional micro-based and nonlinear economic systems models, and (2) a post inquiry into the empirical credibility of the cost-benefit calculations performed. We find that the Micro-based Macro model represents the minimum of detailed resolution necessary for the dynamic cost benefit calculations of the micro interventions in the Swedish economy we study. Even though the increased model complexity meant significant parameter calibration difficulties, a thoroughly researched model specification with exactly defined policy interfaces (with the markets of the economy) should take priority over parameter estimation problems, and always be preferred to estimating the parameters of a wrongly specified model perfectly. The oil price shocks of the 1970s caused radical market disorder in the western economies, bankrupting some 35% of Swedish manufacturing and threatening the Swedish government with massive unemployment. We confirm the earlier results that the government choice of a radical employment rescue policy came at enormous social cost in the form of economic stagnation, and still did not prevent the unemployment of the rest of OECD Europe from hitting Sweden a decade later, and persisting well into the next millennium. According to an alternative simulated policy scenario on the model, had the subsidies been replaced with a general lowering of the payroll tax of the same magnitude and the consequent increase in unemployment taken immediately during 1976–1980, production structures would have been radically and rapidly reorganized, normal employment would have been rapidly restored, and neither the stagnation nor the radical increase in unemployment of the early 1990s would have occurred. In retrospect we see no reason to worry about the empirical credibility of this computed dynamic trade off between Keynesian demand and Schumpeterian supply effects (caused by resource reallocations and endogenous structural change due to the price change), as we did then. We conclude with certainty that this trade-off would not even have been discovered as a possibility had we used a traditional model that did not embody these micro-macro linkages.

Keywords: Micro-macro modeling; Industrial subsidies; Dynamic policy simulation; Dynamic model based cost-benefit analysis; Empirical credibility (search for similar items in EconPapers)
JEL-codes: C53 C63 N14 N24 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00191-018-0581-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joevec:v:28:y:2018:i:4:d:10.1007_s00191-018-0581-5

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/191/PS2

Access Statistics for this article

Journal of Evolutionary Economics is currently edited by Uwe Cantner, Elias Dinopoulos, Horst Hanusch and Luigi Orsenigo

More articles in Journal of Evolutionary Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-11-06
Handle: RePEc:spr:joevec:v:28:y:2018:i:4:d:10.1007_s00191-018-0581-5