OECD Economic Surveys: Sweden

Every 18 months
1999-0448 (online)
1995-3380 (print)
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OECD’s periodic surveys of the Swedish economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

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OECD Economic Surveys: Sweden 2008

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03 Dec 2008
9789264044821 (PDF) ;9789264054233(print)

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This 2008 edition of OECD's periodic survey of Sweden's economy addresses key economic challenges being faced in Sweden including the current economic crisis and fiscal policy, tax reform, education and easing impediments to youth employment, and the next phase of privatisation.
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  • Assessment and recommendations
    With an active, forward-looking approach to economic reform, Sweden has enjoyed considerable international attention in recent years. Around 1970, Swedish GDP per capita was less than 10% below that of the United States, but following the deep crisis in the early 1990s the gap had widened to nearly 25%. Sweden has since started to catch up as market-oriented reforms boosted productivity growth and, most recently, reforms to promote the attractiveness of work have reduced the share of adults living on income benefits. This Survey focuses on how Sweden can continue to catch up via better policies to promote economic growth. Pursuing a growth-oriented reform agenda can help with social cohesion: a growing tax base would ease pressures on public finances and measures in education and labour markets could promote more equal employment outcomes and equality of opportunity. 
  • Key challenges for the Swedish economy
    Sweden has contributed to the fame of the Nordic model, where high per capita income and open markets go hand in hand with social cohesion. The current downturn and the fallout from the global financial crisis pose a key challenge to policymakers seeking the most appropriate mix of financial market measures and monetary and fiscal policy responses. Over the longer term, key challenges for the Swedish economy lie in: finding the right path for fiscal policy, given the current large structural surpluses and future fiscal pressures; tackling the most distortive elements of the tax system; improving education and reducing the high rate of youth unemployment; and improving productivity through privatisation. This chapter lays out these key challenges, and reviews policy progress on those challenges identified in previous Surveys, within the framework of a medium-term growth assessment based on potential labour supply and productivity growth.
  • Fiscal policy
    The current fiscal policy framework was introduced after the crisis of the early 1990s as part of a stability-oriented macroeconomic policy framework. The simple but clear surplus target has been successful at achieving fiscal consolidation, but it may now be time to refine the fiscal strategy to ensure that the sound fiscal position can be sustained in the long term. This chapter assesses the achievements of the current framework and suggests more clearly underpinning the fiscal targets by long-term sustainability and intergenerational equity considerations. Key questions are what future fiscal pressures should be expected and to what extent alternative policies can be used to deal with them: pre-funding, increased labour utilisation, raising efficiency in public service provision via competition and user choice and shifting the balance between public and private funding. 
  • Taxation and growth
    In recent years, Sweden has implemented ambitious tax cuts aimed at boosting growth: it used to have the highest tax-to-GDP ratio in the OECD but is now starting to edge down the list. Yet, further reform may be needed. From income not much above average full-time earnings, the total marginal tax wedge on labour (contributions, income and consumption taxes combined) still reaches 70%. This probably helps explain short average working hours and hinders entrepreneurship, human capital formation and retention or attraction of highly-skilled staff from abroad. Corporate income taxes might also be under growing pressure from increasing capital mobility. Based on the recent OECD Taxation and Economic Growth study, this chapter assesses the Swedish tax system and the need for further tax reforms, focusing on some of the features of the tax system that matter most for longer-run growth.
  • Education and youth employment
    The Swedish labour market functions well for core workers, but the inclusion of youth could be improved. The unemployment rate for youth is four times higher than for prime-age adults, reflecting both deficiencies of the education system and some specific features of the Swedish labour market. Learning outcomes in compulsory schooling are above-average in reading, but not in mathematics and science. In secondary school, the programme structure is fragmented, and youth completing a vocational programme appear to lack important skills: they are not "job ready". This is problematic in the context of a labour market characterised by high minimum wages, set in collective agreements, and stringent employment protection rules: those with low productivity have little chance to find a job, and employers are cautious about hiring youth whose skills are often hard to assess, in particular youth with an immigrant background. This chapter reviews recent proposals for education reform. It also examines how recent tax and benefit changes might be supplemented to ensure that job-search is genuinely attractive without deterring youth from entering and completing further studies early on. 
  • Privatisation
    For many years, public ownership has been relatively widespread in Sweden – even in sectors where, typically, private companies operate on market conditions. Recently, privatisation has become a policy priority. Empirical evidence suggests that privatisation leads to improved firm performance and higher productivity growth. However, the benefits are contingent on enhancing the degree of competition – privatisation in itself is not enough. This chapter reviews these links and considers what steps to take next. Recent financial market turmoil may require some deals to be postponed, but that aside, privatisation should continue. After completing the current first wave of sales, the way to proceed would be a combination of further privatisation and market liberalisation together with consideration of other methods for providing government support where a market failure or social objective remains.
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