The Pandemic and Swedish Fiscal Policy

When I wrote about long-run policy lessons from the pandemic, I mostly focused on the incompetence of the bureaucrats at the FDA and CDC.

I also wrote that Sweden had a very sensible approach. Politicians did not panic. They advised prudence, but kept schools open and did not mandate lockdowns.

Interestingly, Sweden also had better fiscal policy during the pandemic. Trump squandered $2 trillion-plus in 2020 and Biden squandered $1 trillion-plus in 2021.

According to IMF data, by contrast, Swedish fiscal policy was much more responsible, with the burden of government spending increasing at a much slower pace. And that’s true whether looking at the change between 2019 and 2020 or the change between 2019 and 2021.

Sweden even did a better than Switzerland, the country that usually has the best fiscal policy in Europe. Swiss politicians increased spending by 12 percent in 2020, more than twice as fast as overall spending increased in Sweden that year.

But, thanks to its spending cap, Switzerland is doing much better over time. If you look at the past five years, it easily wins the prize for fiscal responsibility (the “debt brake” allowed a big emergency spending increase in 2020, but it also has required extra spending restraint in subsequent years to compensate).

By the way, nobody will be surprised to learn that Switzerland was much more prudent than the United States during the pandemic.

P.S. Sweden had a very good period of spending restraint in the 1990s.

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