Is there Room for Manouvre in Finnish Economic Policy?
The Finnish economy has experienced an incredible shock in the first part of the 1990s. The 12 per cent decline in Finland?s GDP between 1991 and 1993 led to a sharp rise in unemployment from 3.5 per cent in 1990 to 18 per cent in 1993. The credibility of the Finnish economic policy has improved significantly in 1995 and 1996. The effects of the rapid growth gradually spread to domestic market. Also steps taken to halt the growth in public indebtedness and income agreement reached in autumn 1995 were instrumental in this. The drop in long term interest rate and the substantial narrowing in the interest rate differential over ECU-rate are signs of the improved confidence in the market. The Markka was fixed to ERM in 12 October, 1996. In spite of the promising prospects there are, however, uncertainties attached especially to very high unemployment and high tax rate. The main policy challenges discussed in the report are sustaining the credibility of fiscal policy, continuing structural labour market reforms, stressing the importance of wage-setting from a point of view of unemployment and a need for reduce income taxation for wage and salary earners.
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