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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of Sweden, published on 14 February 2007.
Sweden enjoys excellent macroeconomic performance with high rates of growth, low unemployment and stable inflation expectations. Early steps in regulatory reform, taken in the 1990s, are paying off in terms of productivity and GDP growth. However, tensions are visible at the margin. Employment rates have not recovered to traditionally high levels since the crisis of the early 1990s. Joblessness is widespread among immigrants and youngsters, and disability and sickness rates are comparatively high. As well, renewed regulatory reform is needed, inter alia to address the low rate of enterprise formation and enterprise growth that may weaken the economy’s ability to venture into new business fields.
The new government, which took office in October 2006, has renewed the commitment to sound macroeconomic framework conditions and it will stick to the budget surplus target of 2% of GDP. This is necessary to keep public finances on a sustainable path in the face of future spending pressures. As concerns structural policies, the government is determined to eliminate exclusion in the labour market and reduce the administrative burden on enterprises. Some important measures are already included in the 2007 Budget. This Survey builds on these commendable efforts and presents recommendations to increase the cost effectiveness of implemented and intended reforms.
The inflation targeting framework has served Sweden well by firmly anchoring inflation expectations. With price increases being below the inflation target over a prolonged period, partly reflecting positive supply shocks due to globalisation factors, the Riksbank has responded by allowing for a longer time horizon within which inflation can be expected to return to target in this particular environment. The Riksbank’s plan to share its assessment about the future interest rate path should further improve public understanding and better guide expectations.
There is a problem of exclusion in the labour market. Recognising this, the government has presented ambitious reforms that will increase labour supply and demand by reducing replacement rates and the volume of active labour market programmes while waiving social charges for targeted groups and sectors. In addition, a substantial in-work tax credit will be introduced. These measures are designed to work in a context of a compressed wage structure and relatively strict employment protection. The impact of these measures will have to be carefully monitored in order to avoid unintended side effects, and if they are not sufficient, empirical evidence from other OECD countries would suggest that more flexible wage determination and less strict employment protection are promising routes to combat exclusion.
The housing market suffers from distortions. Rental charges are below market levels in metropolitan areas as they are determined by costs in the public housing sector, leading to queues which may reduce labour mobility and welfare. Hence, the rental market is squeezed between rigid rent determination and the booming market for owner-occupied and tenant-ownership housing. Competition in the construction sector is weak and municipalities have too few incentives to provide land for residential construction. Real estate and imputed rent taxes were below neutrality already in 2006. The upcoming housing tax reform should therefore fully finance the 2007 cut – also to avoid fuelling the house price boom. Owning individual flats should be allowed and the application of the rent determination system should be made more responsive to local market conditions.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Sweden 2007 is available from:
For further information please contact the Sweden Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Jens Lundsgaard and Felix Huefner under the supervision of Andreas Wörgötter.