The Strong Performance Of Public Finances

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The strong performance of public finances in Sweden is an interesting case.Previous studies have compared the current crisis with the banking crisis in Sweden in the early 1990s to study the reason behind Sweden’s strong public finances (Flodén, 2013). When comparing the macroeconomic behavior during the current crisis and during the banking crisis in the early 1990s, it showed a larger drop in GDP and in exports while unemployment increased very less during the current crisis. The absence of large increase in unemployment rate explained the strong Swedish public finances. The relatively steady employment rate is due to the aggregated demand during the current crisis remained strong, and the lower employment in the manufacturing sector was offset by the increase in private sector. Another more important factor contributed to the high employment rate during the current crisis is the Swedish fiscal policy framework, which was established after the banking crisis in 1990s. The following analysis will explain how the fiscal framework can affect the Swedish public finances. 4.2. The Swedish Fiscal Framework The Swedish Fiscal Policy Framework was established in response to the earlier banking crisis in 1990s. The main objective of the fiscal framework is to attain fiscal stability. It consists of four main parts, (i) a balanced budget requirement for municipalities and county councils, (ii) an expenditure ceiling for the central government, (iii) a top-down budget process, (iv)
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