Hidden Bibliographic Details
| Other authors / contributors: | Medina Guzman, Juan Pablo, 1971- author.
International Monetary Fund. Research Department.
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| ISBN: | 1513501194
9781513501192
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| ISSN: | 1018-5941
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| Notes: | "December 2015."
"Research Department."
Includes bibliographical references (pages 37-40).
Online resource; title from pdf title page (IMF.org Web site, viewed December 22, 2015).
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| Summary: | This paper studies the Swedish fiscal consolidation episode of the 1990s through the lens of a small open economy model with distortionary taxation and unemployment. We argue that the simultaneous reduction in the fiscal deficit and unemployment rate in this episode stems from two factors: (i) high growth rates of total factor productivity (TFP), experienced after the implementation of structural reforms; and (ii) a sustained wage restraint that occurred during the 1990s. The model simulations show that economic growth, accounted for mostly by TFP gains, improved the fiscal balance by 8 percentage points of GDP through an expansion of the tax base and fiscal revenues. Moreover, the combination of stable wages and higher TFP boosted net exports and led to a reduction in the unemployment rate. A counterfactual simulation assuming stagnant TFP shows that fiscal consolidation measures alone would have generated a double-digit unemployment rate without eliminating the fiscal deficit.--Abstract.
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| Standard no.: | 10.5089/9781513501192.001
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