The Swedish Fiscal Framework. The Challenge of Maintaining Fiscal Discipline amid Rising Spending Pressures

This Economic Brief explains how the Swedish national fiscal framework, since its gradual introduction starting in the mid-1990s, has contributed to restoring fiscal discipline and decreasing the government -debt-to-GDP ratio. The main components of that framework (including the so called surplus target, expenditure ceilings and a debt anchor) are presented and compared with that of its EU peers. This is followed by a closer look at the distribution of the achieved consolidation across revenues and expenditures, respectively, and across the various levels of government. Thereafter, the paper discusses the particular role of defining a so-called “reform space” in steering the budgetary process. Following the established practice of reviewing the level of the surplus target every eight years and as a result of the emergence of new spending needs, for example on defence, and the need to transpose new legislation at EU level into national legislation, there is a discussion on how to adapt the framework. The paper describes the main proposals in this discussion, including the lowering of the target for government net lending to 0% of GDP and the new approach to increasing defence spending without breaching the fiscal rules. The final section concludes by distilling a few tentative lessons from the Swedish experience.