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OECD Economic Surveys: Denmark 2008

image of OECD Economic Surveys: Denmark 2008

OECD's periodic survey of the Danish economy.  After examining some of the key challenges faced by Denmark, the survey looks in more detail at the fiscal strategy; promoting employment and inclusiveness; tax reform, hours worked and growth; health care; and pension savings and capital taxation.

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Key challenges for the Danish economy

The Danish economy has come to a pivotal point. A lot has been achieved over the past 25 years thanks to stability-oriented macroeconomic policies and gradual forward-looking reforms. Following rapid debt reduction, public finances are better prepared for population ageing than in most OECD countries. Moreover, the flexible labour market, combined with active support for those losing jobs, makes a good starting point to benefit from globalisation. Yet, economic stability could be at risk now: unsustainable wage increases could undermine the stability of inflation expectations, and thus the current boom could end in a major hike in unemployment going well above structural equilibrium levels. A strong correction could then be triggered in the housing market and could lead to a recession which might be prolonged. This chapter starts with the urgent challenge of avoiding overheating and the requirements for fiscal policy. Thereafter, it assesses the economy from a structural perspective and indentifies the key challenges in the short- and mediumterm.

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