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Eurosclerosis or Financial Collapse: Why Did Swedish Incomes Fall Behind?

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Author Info
Valerie Cerra (International Monetary Fund)
Sweta C. Saxena (University of Pittsburgh)

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Abstract

Sweden represents an archetypal welfare state economy, with extensive government safety nets. Some scholars have attributed a decline in its per capita income ranking since 1970 to “eurosclerosis” or sluggish growth caused by distortionary policies. This paper argues rather, that the permanent loss in output following Sweden’s banking crisis in the early 1990s explains the decline in its per capita GDP ratings. The paper finds no macroeconomic evidence that welfare state policies have deterred growth. The results warn that empirical growth analyses should distinguish between trend output growth and permanent output loss associated, for example, with financial crises.

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Paper provided by EconWPA in its series Macroeconomics with number 0508007.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 26 pages
Date of creation: 07 Aug 2005
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Handle: RePEc:wpa:wuwpma:0508007

Note: Type of Document - pdf; pages: 26
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Web page: http://129.3.20.41

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Related research
Keywords: Financial Crisis; Welfare State; Sweden; Output Loss;

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Find related papers by JEL classification:
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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    Other versions:
  3. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis: Pitfalls in Financial Liberalization," IMF Occasional Papers 161, International Monetary Fund.
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  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
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  9. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  11. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September. [Downloadable!] (restricted)
  12. Kim, Chang-Jin & Piger, Jeremy, 2002. "Common stochastic trends, common cycles, and asymmetry in economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1189-1211, September. [Downloadable!] (restricted)
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  13. Frederick van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  14. Torsten Persson and Guido Tabellini., 1991. "Is Inequality Harmful for Growth? Theory and Evidence," Economics Working Papers 91-155, University of California at Berkeley.
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  15. Sala-I-Martin, X., 1992. "Public Welfare and Growth," Papers 666, Yale - Economic Growth Center.
  16. James H. Stock & Mark W. Watson, 1993. "A Procedure for Predicting Recessions with Leading Indicators: Econometric Issues and Recent Experience," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 95-156 National Bureau of Economic Research, Inc. [Downloadable!]
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  17. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  18. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Hansson, Par & Henrekson, Magnus, 1994. " A New Framework for Testing the Effect of Government Spending on Growth and Productivity," Public Choice, Springer, vol. 81(3-4), pages 381-401, December.
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