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The sustainability of Swedish fiscal policy

The sustainability of Swedish fiscal policy. Thomas Eisensee Senior Economist. The ageing of the population. Demographics: Lower fertility (TFR 1.85) Rising longevity (Women 82.5 →86.5, Men 78.3 → 83.3) Immigration (12% foreign born) Fundamental problem Fewer workers More retirees

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The sustainability of Swedish fiscal policy

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  1. The sustainability of Swedish fiscal policy Thomas Eisensee Senior Economist

  2. The ageing of the population • Demographics: • Lower fertility (TFR 1.85) • Rising longevity (Women 82.5→86.5, Men 78.3 → 83.3) • Immigration (12% foreign born) • Fundamental problem • Fewer workers • More retirees • Implies higher expenditure and lower tax revenue (even at constant taxes)

  3. Is Swedish Fiscal Policy sustainable? • The Government provides two answers: • Given taxes and expenditures Central Government gross debt does not increase beyond its present level • The present discounted value of Central Government primary surpluses equals the current level of outstanding debt.

  4. Evaluating Fiscal Policy • Sustainability is the ultimate objective • The Expenditure ceiling and the Surplus target are intermediary objectives • An analysis of principle is required: how are the intermediary objectives linked to the ultimate objective? • Some considerations • Several paths for debt are sustainable • Intergenerational equity • Efficiency (tax-smoothing) • There are trade-offs • Future generations are better off • Precautionary savings to meet unexpected shocks to the economy

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