Foundations for Growth and Competitiveness 2026

Sweden

Despite rapid population growth, largely driven by immigration, Sweden's GDP per capita growth has outpaced most OECD countries over the past decade. The employment rate is the tenth highest in the OECD and has increased considerably among older workers and for vulnerable groups such as immigrant women. The capital stock has increased roughly in line with the OECD average over the same period.

Sweden’s economic fundamentals and institutions are strong, but challenges remain. Rent controls are the strictest in the OECD, limiting construction and labour mobility, contributing to overcrowded living and residential segregation. Necessary infrastructure investments are slowed down by planning processes. There is scope to further reduce the labour tax wedge by shifting the tax mix towards property and environmental taxes. Continued sharpening of skills can boost employment and innovation further.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Housing: Phase out rent controls

Rent controls are the strictest in the OECD, hampering labour mobility by constraining rental supply. Rents are in most cases set in negotiations between landlord and tenant unions. Consequently, older housing with lower rents is not available at all in a reasonable time frame in the big cities, while new units are too expensive for low-income households. There is no system for social housing. Phasing out rent controls would reduce residential segregation and lower homelessness and overcrowded living, which are higher than in the other Nordics.

Recommendations

✓ Abolish rent controls for newly built housing units.

✓ Phase out rent controls in the existing housing stock over a pre-determined period to give incumbents time to adjust.

✓ Aid the transition by implementing a system for needs-tested social housing.

Physical infrastructure: Improve coordination of planning and zoning straddling municipal borders

Municipalities have full zoning and permitting authority within their borders. Weak coordination between municipalities in response to regional and national challenges, resistance from incumbent property owners, and a cumbersome environmental permitting procedure are complicating investments in housing, industry, infrastructure and regional development.

Recommendations

✓ Streamline environmental permitting procedures to speed up infrastructure projects.

✓ Consider limiting the municipal veto for projects with high societal value straddling municipal borders.

Human capital: Ensure equal opportunity in primary and secondary education

The grading system in primary and secondary education puts excessive weight on fail grades, and struggling students do not always get the help they need and are entitled to. School choice and intake in publicly funded private schools tend to favour socioeconomic advantaged families. A relatively large share of pupils struggle to meet academic requirements for the normal upper secondary education programmes. Many initially fail to graduate from upper secondary education but they do get a second chance in adult education.

Recommendations

✓ Grade national tests externally to create an objective benchmark for school performance, as planned. Use this to improve competition along the quality dimension and address weakly performing schools.

✓ Weigh high and low grades symmetrically and suppress the requirement to pass in certain subjects so that the grade point average and entry to upper secondary education better reflects the student’s full set of skills.

✓ Assign pupils to over-subscribed private schools by lottery, or with quotas reserved for pupils with unfavourable socio-economic backgrounds.

Taxation: Make taxation more growth-friendly and reduce tax shifting incentives

High marginal taxes on labour and a substantial gap to capital income taxation weakens work incentives and leads to income shifting. Low taxes on investment savings accounts discourage current consumption and primarily benefit relatively wealthy individuals. Low and regressive recurrent property taxation, generous mortgage interest deductibility, and the tax deduction for repairs, maintenance and home improvement subsidise owner-occupied housing. Fuel taxes have been cut significantly in recent years.

Recommendations

✓ Delegate authority to municipalities to collect taxes on the market value of property and set their rates while abolishing the tax deduction for repairs, maintenance and home improvement.

✓ Reduce the scope for income shifting by increasing dividend taxation, taxing investment savings accounts in line with other capital and reducing the top marginal tax rate on labour income.

✓ Revert to 2022 rates for fuel taxes.

Innovation: Invest in basic research and tertiary education

Universities play a key role in research and to internalise innovations at the global scientific frontier. They also drive regional development by fostering innovation and helping retain local talent. A falling ratio of teaching personnel per student creates a time conflict between research and teaching, which likely diminishes the value added of university degrees and lower research output. Universities are not allowed to charge tuition fees from Swedish and EU/EEA citizens.

Recommendations

✓ Invest in basic research and applied research in cooperation with businesses.

✓ Consider allowing universities to charge limited tuition fees from Swedish and EU/EEA citizens, offset by increased public student loans and possibly means-tested grants.

Recent progress on structural reforms

Marginal taxes on labour income have been reduced lately by abolishing the tapering of the Earned Income Tax Credit on higher incomes. The use of non-standard work contracts has been limited while it has been made easier to deviate from the first-in-first-out principle in the case of redundancies. Work is underway to reform the grading system in primary and secondary schools, following reforms to improve quality and equity of teaching.