Front Matter

Front Matter

Author(s):
Subhash Thakur, Valerie Cerra, Balázs Horváth, and Michael Keen
Published Date:
May 2003
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    © 2003 International Monetary Fund

    Production: IMF Multimedia Services Division Cover Design: Sanaa Elaroussi

    Figures: Julio R. Prego

    Typesetting: Alicia Etchebarne-Bourdin

    Cataloging-in-Publication Data

    Sweden’s welfare state: can the bumblebee keep flying? / Subhash Thakur … [et al].—[Washington, D.C.]: International Monetary Fund, [2003].

    p. cm.

    Includes bibliographical references.

    ISBN 9781589061583

    1. Welfare state. 2. Sweden—Economic policy. 3. Sweden—Economic conditions. 4. Labor market—Sweden. I. Thakur, Subhash Madhav, 1946- II. International Monetary Fund.

    HC375.S83 2003

    Price: $23.50

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    … Think of a bumblebee. With its overly heavy body and little wings, supposedly it should not be able to fly—but it does. Every summer it comes back and makes the seemingly impossible possible en route from a forget-me-not to a daisy. This is how so-called analysts view the Swedish economy. We “defy gravity.” We have high taxes and a large public sector, and yet, Sweden reaches new heights. We are still flying, so well that many envy us for it today.

    —Prime Minister Göran Persson

    Opening address on March 10, 2000 to the Extra Party Congress of the Social Democratic Party in Stockholm.

    Contents

    • The following symbols have been used throughout this volume:

    • … to indicate that data are not available;

    • —to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

    • - between years or months (e.g., 2001–02 or January-June) to indicate the years or months covered, including the beginning and ending years or months;

    • / between years (e.g., 2001/02) to indicate a fiscal (financial) year.

    • “Billion” means a thousand million.

    • Minor discrepancies between constituent figures and totals are due to rounding.

    • The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

    Foreword

    A key issue facing the world economy in the new century is the need to refashion a proper role for the state in economic affairs. The debate over the economic role of the state in the advanced industrial countries is a long-running one, and its centrality is manifest in the contrasting—and often passionately held—viewpoints on the appropriate role and limits of the welfare state.

    This debate has come into sharper focus in recent years as these economies have tried to adjust to the powerful forces of rapid globalization of economic activity and the unavoidable aging of populations. Indeed, the issue at the heart of this debate—how to find the right balance between the imperatives of economic efficiency and those of economic and social equity—is increasingly a focus of the International Monetary Fund’s surveillance of its members’ economic policies.

    In this context, the experience of Sweden is of particular interest. I hope that this study of the challenges facing the Swedish welfare state will prove instructive in the context of the wider global discourse on this important topic.

    Anne O. Krueger

    First Deputy Managing Director

    International Monetary Fund

    Preface

    Sweden has long been viewed as epitomizing a particular approach to economic and social policy. To its critics, the Swedish welfare state is marked by excessive government intervention and attendant inefficiencies that impede the economy’s ability to respond to shocks and impair its long-term growth performance. To its advocates, it is a social system building on a strong consensus favoring extensive intervention to ensure a high quality of life for all Swedish citizens—it is the bumblebee that somehow manages to fly. Just as important as assessing the past achievements and shortcomings of the Swedish welfare state, however, is the task of preparing for what lies ahead. Increasing internationalization of economic activity, combined with demographic pressures, seem likely to change the context within which Sweden must pursue its economic and social goals.

    Through its continual surveillance of its members’ economic policies, centered on an annual visit and assessment by staff, the International Monetary Fund has observed the workings of the Swedish welfare state for many years. It has offered its own advice, and sought to distill lessons for others. This book continues that process. It grew out of a visit to Stockholm in June 2001 by a mission headed by Subhash Thakur and comprising Balázs Horváth and Valerie Cerra (all of the European I Department) and Michael Keen (of the Fiscal Affairs Department).

    This is an especially opportune moment to take stock of the achievements and prospects for the Swedish welfare state. The difficulties of the early 1990s have receded into the past, and the reforms adopted in their wake have been in place long enough to afford a considered assessment. And now the challenges of the new century loom. How Sweden responds to these is important not only to the Swedes themselves, but as a potentially valuable lesson to others. We hope that this book will help to inform what seems certain to prove a long and lively debate, with a resonance far beyond Sweden.

    Michael DepplerTeresa Ter-Minassian
    Director, European I DepartmentDirector, Fiscal Affairs Department

    Acknowledgments

    This book is the product of much hard work by other people. Among the staff of the IMF whom the authors would particularly like to thank are Richard Hemming, Robert Ford, C. Maxwell Watson, Eivind Tandberg, and Kornélia Krajnyák. Participants in seminars at the IMF and the Swedish Ministry of Finance, Erik S. Weisman, Vijay L. Kelkar, R.A. Jayatissa, and other members of the IMF’s Executive Board have also provided useful comments. We have also benefited greatly from discussions at the Confederation of Swedish Enterprise, the Institute for International Economic Studies, Uppsala University, the Ministry of Finance, the Ministry of Industry and Labor, the Riksbank, the Office of Labor Market Program Evaluation, the Government of Uppsala, the Swedish Association of Local Authorities, and the Swedish Confederation of Trade Unions. The authors would like to thank Jonas Agell, Dan Andersson, Krister Andersson, Paul Armknecht, Sören Blomquist, Robert Boije, Per-Olof Edin, Johan Gull, John Hassler, Anders Kristoffersson, Assar Lindbeck, Thomas Lindh, Lars-Erik Lindholm, Michael Lundholm, Nils Mårtensson, Henry Ohlsson, Mats Persson, Jan Södersten, Lars Svensson, Gunnar Tersman, and Judit Weibull for useful comments and suggestions. We are grateful for assistance from Joy Rivera and Janet Shelley, and to Richard Phillips for research assistance. Sean M. Culhane of the IMF’s External Relations Department edited the manuscript, and James McEuen of the External Relations Department copyedited it and coordinated its production and publication. The views expressed, however, are the sole responsibility of the authors, as are any remaining errors.

    Subhash Thakur

    Michael Keen

    Balázs Horváth

    Valerie Cerra

    Abbreviations

    AECT

    Average effective corporate tax rate

    ALMP

    Active labor market program

    EU

    European Union

    GDP

    Gross domestic product

    ICT

    Information and communication technology

    LO

    Swedish Confederation of Trade Unions

    MEB

    Marginal excess burden of taxation

    MECT

    Marginal effective corporate tax rate

    MEST

    Marginal effective personal savings tax rate

    MELT

    Marginal effective labor income tax rate

    MEPT

    Marginal effective personal income tax rate

    OECD

    Organization for Economic Cooperation and Development

    PAYG

    Pay-as-you-go

    PPP

    Purchasing power parity

    SKr

    Swedish krona

    SAF

    Confederation of Swedish Employees

    TFP

    Total factor productivity

    UN

    United Nations

    UNDP

    UN Development Program

    VAT

    Value-added tax

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