Coping with Budget Deficits in Sweden

During the late 1970s and early 1980s Sweden's budget deficits grew more rapidly than in probably any other country of Western Europe. Government policy responses developed in three phases. In the late 1970s there was very little action taken to cope with run-away deficits. From 1980 to 1982 a strategy was formulated and partly implemented which heavily emphasized austerity measures through expenditure cuts. From late 1982 a 'mixed' strategy has been pursued which combines less drastic cuts with selected revenue increases. The virtual lack of response in the late 1970s and the turn-about in 1980 may be explained by reference to four major categories of factors: the severity and longevity of the economic crisis itself and the prevailing interpretations of its root causes; the dynamics of public sector growth and the understanding of the processes involved; the ideological and policy predispositions prevalent among policy-makers, economists, major interest groups and the public at large; and, finally, a set of 'organizational' factors mainly associated with the parliamentary situation in Sweden.