The sustainability of Swedish fiscal policy

1
The sustainability of Swedish fiscal policy

• Thomas Eisensee
• Senior Economist

2
The ageing of the population

• Demographics
• Lower fertility (TFR 1.85)
• Rising longevity (Women 82.5?86.5, Men 78.3 ?
  83.3)
• Immigration (12 foreign born)
• Fundamental problem
• Fewer workers
• More retirees
• Implies higher expenditure and lower tax revenue
  (even at constant taxes)

3
Is Swedish Fiscal Policy sustainable?

• The Government provides two answers
• Given taxes and expenditures Central Government
  gross debt does not increase beyond its present
  level
• The present discounted value of Central
  Government primary surpluses equals the current
  level of outstanding debt.

4
Evaluating Fiscal Policy

• Sustainability is the ultimate objective
• The Expenditure ceiling and the Surplus target
  are intermediary objectives
• An analysis of principle is required how are the
  intermediary objectives linked to the ultimate
  objective?
• Some considerations
• Several paths for debt are sustainable
• Intergenerational equity
• Efficiency (tax-smoothing)
• There are trade-offs
• Future generations are better off
• Precautionary savings to meet unexpected shocks
  to the economy