Expenditure ceilings and fiscal policy – Swedish experiences

Abstract

In the late 1990s the Swedish budget process and fiscal framework were thoroughly reformed, and in 2006 the new system had been in place for eight years. The aim of this paper is to describe this system, with an emphasis on expenditure ceilings, and to discuss the experiences gained so far. The paper is organized as follows: First the reforms of the budget process and the Swedish fiscal framework are presented. Especially, the relation between expenditure ceilings and the surplus target is explained. Then the paper discusses the track record of the expenditure ceilings, describes the budget margin mechanism and the principles for deciding the nominal levels of the ceilings. After that the paper highlights some problems with the system. Then the functioning of the system over the economic cycle 1998 to 2005 is discussed. Finally, the conclusions are summarised.