1. Ministry of Finance Sweden The New Government’s Economic Policy Per Jansson

2. Ministry of Finance Sweden Plan of talk Some personal data A few facts about the Government Offices, the Ministry of Finance, and economic policy in general Facts about the Swedish economy The new economic policy –Undertaken and planned policy measures –Expected effects (forecasts from Budget Bill and evaluation done by Lars Calmfors)

3. Ministry of Finance Sweden Personal data PhD 1994; Associate Professor 2000 (Uppsala University) Mainly: general macro (empirical) and monetary policy 10 yrs at the Riksbank, 2 yrs at the NIER Also: FIEF, the Economic Council of Sweden, SJ

4. Ministry of Finance Sweden The Government Offices The Government Ministry of Agriculture, Food and Fisheries Ministry of JusticePrime Minister’s OfficeMinistry for Foreign AffairsMinistry of DefenceMinistry of Health and Social Affairs Ministry of Finance Ministry of Education Research and Culture Ministry of Sustainable Development Ministry of Industry, Employ- ment and Communications Office for Administrative Affairs

5. Ministry of Finance Sweden most common occupations: economists, lawyers and social scientists 470 plus employee s 95% are non-political staff average age is about 40 50 per cent are women 65% have executive responsibilities 10% have managerial responsibilities 25% have administrative responsibilities The Ministry of Finance

6. Ministry of Finance Sweden IAKLA Minister for Finance Anders Borg Minister Mats Odell Chief Political Adviser Political Advisers Press Political Advisers 7 Divisions Budget Department Economic Affairs Tax and Customs Public Administration Financial Markets International Department 3 Divisions 4 Divisions3 Divisions 5 Divisions Legal Secretariat Information Department Departement for Coordination and Support 3 Divisions State Secretary Hans Lindblad State Secretary Per Jansson State Secretary Ingemar Hansson State Secretary

7. Ministry of Finance Sweden State Secretary for economic policy responsible for… Departments: International Department, Economics Affairs, Division for Structural Policies at Budget Department In addition: issues related to statistics and government real estates Government agencies: NIER, Statistics Sweden, the Economic Council of Sweden, the Swedish National Financial Management Authority (ESV), the National Property Board (SFV), the National Fortification Administration

8. Ministry of Finance Sweden Conducting economic policy means… monitors and analyses the Swedish economy makes short and long-term forecasts conducts studies at household and individual level takes part in international economic work The Ministry of Finance …undertaking measures to influence the national economy. Divided into:- stabilisation policy - distribution policy - structural policy

9. Ministry of Finance Sweden The goals of economic policy… full employment a stable economy stable prices high growth fair distribution … are set by the Government and the Riksdag, and can broadly be summarised as follows: sound public finances

10. Ministry of Finance Sweden Government commences preparatory budget work Government submits Spring Budget Bill including proposals for expenditure ceilings to the Riksdag Economic policy is implemented through the budget process Riksdag approves the budget January February March April May June July August September October November December Government agencies supply background budget data The Riksdag approves expenditure ceilings and preliminary frames for the expenditure areas Government submits the Budget Bill to the Riksdag

11. Ministry of Finance Sweden The Swedish economy: since the mid 1990s good macro performance in many respects Growth higher than previously and higher than in many other countries Inflation low and stable Public finances with surplus Reasonable real and nominal wage increases

12. Ministry of Finance Sweden GDP level and growth rate

13. Ministry of Finance Sweden CPI inflation

14. Ministry of Finance Sweden Public savings (percent of GDP) Note: The dashed line is the forecast in the Budget Bill for 2007.

15. Ministry of Finance Sweden Nominal and real wage growth

16. Ministry of Finance Sweden But there are also problems… Weak labour market development with high absence Equilibrium (un)employment too low (high) It does not pay enough to work Business climate for in particular small companies not as good as it should be Too few want to employ and run a business Demographic challenges ahead

17. Ministry of Finance Sweden GDP growth and unemployment

18. Ministry of Finance Sweden The Swedish population by labour force status, 2005

19. Ministry of Finance Sweden Individuals supported by social transfers Thousands of full-time equivalents

20. Ministry of Finance Sweden The difference between going to work and being sick-listed is too small

21. Ministry of Finance Sweden Few new companies established

22. Ministry of Finance Sweden Swedish population growth up to 2050 (change compared to 2006)

23. Ministry of Finance Sweden Dependency ratios

24. Ministry of Finance Sweden Population growth in the age 20-64 years (change compared to 2006)

25. Ministry of Finance Sweden The labour market at different points in time 1990 1993 2005 Unemployment 1,5 8,3 5,4 Labor force participation84,5 77,7 78,0 Employment83,3 71,2 73,8 Benefit recipients15,7 22,2 20,4

26. Ministry of Finance Sweden Possible sources of unemployment persistence Decreasing search activity Calls for: measures that increase search activity and decrease locking-in effects Generous benefits Calls for: measures that make it worthwhile to work The compressed wage structure Calls for: measures that increase the availability of low-skilled jobs at an agreeable wage Stigmatization Calls for: measures that decrease the cost associated with employing jobseekers who have been out of work for a long time Employment protection legislation

27. Ministry of Finance Sweden What is needed? A combination of measures that affect simultaneously: The matching process Labour supply Labour demand

28. Ministry of Finance Sweden Autumn Budget Bill 2007 affects Matching through: Changes in the institutional set-up of labour market policies Individual action plans and coaching Changes in unemployment benefits Lower volumes of labour market programmes

29. Ministry of Finance Sweden Autumn Budget Bill 2007 affects Labour supply through: Earned income tax credit that increase after-tax revenue Changes in unemployment benefits Changes in sick-leave benefits Lower volumes of labour market programmes

30. Ministry of Finance Sweden P Y AS AD

31. Ministry of Finance Sweden Autumn Budget Bill 2007 affects Labour demand through: “New start jobs” targeted at benefit recipients, refuges, and older people Decreased employers’ contributions for youth & older Increased possibilities to time-limited hires and also: Tax reductions on household-related services (in 2007) Tax reductions in various service sectors (in 2008)

32. Ministry of Finance Sweden P Y AS AD

33. Ministry of Finance Sweden P Y AS AD

34. Ministry of Finance Sweden The Swedish labour market according to the Budget Bill 20052006200720082009 Employment, percentage change 0,81,71,51,00,6 Labour force, percentage change 0,81,31,80,10,0 Regular employment rate (20-64) 77,477,779,079,880,2 Open unemployment rate6,05,65,85,04,3 Labour market programmes – participants – per cent of labour force 123 000 2,7 143 000 3,1 91 000 1,9 64 000 1,4 70 000 1,5 Total unemployment rate8,7 7,76,35,8

35. Ministry of Finance Sweden Effects on income distribution (2007, percentage change)

36. Ministry of Finance Sweden Effect on income distribution: Gini coefficient

37. Ministry of Finance Sweden Calculation of effects by Lars Calmfors Approach: use estimates (elasticities) of previous empirical studies (several) to quantify the long-run effects of the different policy measures Studies considered: –Bassanini & Duval (2006, OECD WP 486) – Forslund, Gottfries & Westermark (2006, CESifo WP 1649) –Forslund & Kolm (2000, IFAU WP 7) –Nickell (2003, CESifo DICE Report 2)

38. Ministry of Finance Sweden Bassanini & Duval (2006): lower unemployment benefits and tax wedge CategoryEffect in percentage terms Unemployment-1.0 / -0.8 Employment rate, males 25-54 +1.4 / +1.0 Employment rate, females 25-54 +2.4 / +1.8 Employment rate, youth 20-24 +3.2 / +2.7

39. Ministry of Finance Sweden Forslund et al (2006): lower net replacement rate and reduction of ALMPs CategoryEffect in percentage terms Wage-1.7 / 0 Open unemployment-1.0 / -0.4 Total unemployment-2.0 / -1.4

40. Ministry of Finance Sweden Forslund & Kolm (2000) and Nickell (2003) FK about 1 percentage point larger unemployment effect Nickell: Change in U = -0.42 – 1.24 x (net no. of ”employment-friendly” reforms) R 2 = 0.51, N = 20 => for Sweden this gives 3 x 1.24 = 3.7 percentage points lower unemployment