Occasional Studies, Konjunkturinstitutet - National Institute of Economic Research
Is an Unchanged Public Sector Commitment a Sustainable Commitment?
Abstract: This report analyses the long-term sustainability of
Sweden’s public finances. There is no universally accepted definition of
long-term sustainability. One common and intuitive starting point for
assessing the sustainability of public finances is that, over time, flows
of expenditure should be matched by equal flows of income. If expenditure
exceeds income, debt will inevitably increase. If this imbalance is large
and persistent, debt levels will eventually become unmanageable, and public
finances will not be longterm sustainable. In a sense, one can assume that
public finances will always be longterm sustainable if political decisions
continue to be made to correct any imbalances in public finances. In the
event of deficits, taxes will be raised or spending curbed; and in the
event of persistent surpluses, one can imagine taxes being lowered or
unfunded reforms being introduced within the resulting fiscal space. The
assessment of the long-term sustainability of public finances in the
present report, as in other contexts, is based on the current scope of the
welfare commitment and the tax system that is to finance it.2 The question
analysed is whether future developments in government expenditure with an
unchanged commitment are compatible with the income provided by the current
design of the tax system.
Keywords: public finances; long-term sustainability; (follow links to similar papers)
80 pages, April 7, 2014
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