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

Fredrik Andersson and Lars Jonung ()

No 2019:6, Working Papers from Lund University, Department of Economics

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.

Keywords: Fiscal policy; fiscal framework; fiscal policy council; financial crisis; debt crisis; consumption smoothing; Sweden; EU (search for similar items in EconPapers)
JEL-codes: E61 E62 E63 G02 H12 H30 N14 O52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-04-10
New Economics Papers: this item is included in nep-eec, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2019_006

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