Efficiency

An important reason for the introduction of TR91 was the view that the old tax system hampered productive activity. High tax wedges on labour income and nonuniform taxation of capital led to a mismanagement of economic resources. In this concluding chapter, we shall see whether the hopes for a more efficient Swedish economy were justified. An important problem in this context is that many of the desired effects of TR91 are of a decidedly long-term nature. Labour market legislation and the nature of employment contracts mean that a majority of employees cannot make overnight changes in their working hours. It takes several years before improved incentives for higher education are converted into social productivity gains. Added to this — and something which is of decisive importance — is that the severe recession of the 1990s put a wet blanket on the supply side of the economy. As a result, not even a die-hard supply-sider ought to expect rapid and easily detectable effects. It will not be possible to pass a more final efficiency verdict on TR91 until the beginning of the next century.