Following a severe contraction in the early 1990s, the Swedish economy accumulated a strong record of output growth coupled with a disappointing performance in the labor market. As of 2005, hours worked per person 20-64 years of age are 10.5 percent below the 1990 peak and a mere one percent above the 1993 trough. Employment rates tell a similar story. Our explanation for Sweden's weak performance with respect to market work activity highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, business tax policies that disfavor labor-intensive industries and technologies, and a variety of policies and institutional arrangements that disadvantage younger and smaller businesses. This last category includes tax policies that penalize wealth accumulation in the form of owner-operated businesses, a pension system that steers equity capital and loanable funds to large incumbent corporations, and legally mandated job-security provisions that weigh more heavily on smaller and younger businesses. We describe these features of the Swedish institutional setup and provide evidence of their consequences based largely on international comparisons.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12768.
Length: Date of creation: Dec 2006 Date of revision: Handle: RePEc:nbr:nberwo:12768
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Erik Norrman & Charles E. McLure Jr., 1997.
"Tax Policy in Sweden,"
NBER Chapters,
in: The Welfare State in Transition: Reforming the Swedish Model, pages 109-154
National Bureau of Economic Research, Inc.
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