EXPENDITURE CEILINGS AND FISCAL POLICY
SWEDISH EXPERIENCES
Urban Hansson Brusewitz and Yngve Lindh^1 (Ministry of Finance Sweden)Paper completed: April 20051. Introduction
In the late 1990s the Swedish budget process and fiscal framework were thoroughly reformed, and in
2005 the new system has been in place for seven years. The aim with this paper is to describe this
system, with an emphasis on expenditure ceilings, and to inform the reader about experiences so far. The
paper is organized in six parts: In section two the reforms of the budget process and the fiscal framework
are presented. Especially the relation between expenditure ceilings and the surplus target is explained.
Section three is concentrated on expenditure ceilings and their track record so far, the budget margin
mechanism and the principals for deciding the nominal levels of the ceilings. Thereafter, in section four,
some problems with the system is elaborated and in section five the functioning of the system over the
economic cycle 1998 to 2004 is discussed. Finally, in section six some reflections and conclusions are
drawn.
2. Description of the fiscal policy framework^2
2.1. Budget process and expenditure ceilings
Swedish public finances went through two weak periods in the last decades - one in the early 1980s and a
second in the early 1990s. The latter episode was the most severe fiscal crises after the Second World
War and probably one of the deepest in the industrialized world at that time. This pronounced weakening
was influenced by the international slowdown, but had without doubt also domestic causes related to
stabilization policy, sequencing of deregulation and to the wage formation process. It was also at that
time observed that the Swedish budget process was rather loose and could have contributed to the crises.^3
A reform process was initiated, which led to substantial changes in the budget process later in the 1990s.
Central features of the new budget process, implemented in January 1997, are a “top-down” budgetary
process, multi-year expenditure ceilings and a medium-term target for the government’s net lending.
(^1) Both authors were at the time employed in the Swedish Finance Ministry. The views expressed in this paper are those of
the authors and do not necessarily reflect those of the Finance Ministry. The authors would like to thank Gösta
Ljungman for valuable comments.
(^2) This part draws on Hansson Brusewitz (2002) and Heeringa-Lindh (2001).
(^3) Molander (2000).