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

  • Valerie Cerra

    (International Monetary Fund)

  • Sweta C. Saxena

    (University of Pittsburgh)

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.

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Length: 26 pages
Date of creation: 07 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0508007
Note: Type of Document - pdf; pages: 26
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  19. Frederick Van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo Group Munich.
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