Fiscal Squeeze in Sweden, 1990–1997:
Fiscal Squeeze in Sweden, 1990–1997:
The Causes, the Measures, and their Short- and Long-Run Effects
This chapter describes how the Swedish fiscal squeeze of the 1990s was implemented and the effects it had. The economic effects of the fiscal squeeze were largely positive, in that the Swedish economy made a remarkable recovery. Moreover, the squeeze was achieved without changing the basic characteristics of the famous ‘Swedish model’ welfare state. However, unemployment did not return to the very low levels Sweden used to have before the 1990s. This partly explains increasing relative poverty. Short-run political effects of the fiscal squeeze were noticeable in 1998. After a temporary recovery in 2002, the relatively high unemployment hurt the incumbent party in the election of 2006 when the Social Democrats experienced historically bad electoral consequences. The fiscal squeeze cost the party a trump card: its status as the guardian of the Swedish welfare state is no longer unchallenged.
Keywords: Sweden, fiscal squeeze, Swedish model, Social Democrats, electoral consequences, welfare, unemployment
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