Shaping the Fiscal Policy Framework: Lessons from Fiscal Consolidations in Denmark and Sweden

This paper provides an overview of experiences with fiscal and structural reforms in Denmark and Sweden, focusing on areas of particular relevance to members of the euro area struggling with large budget imbalances. First, given the current priority to austerity plans in the euro area, we review the international experiences with large-scale fiscal consolidations, including
evidence on the expansionary fiscal contraction hypothesis with particular focus on the Danish experience in the early 1980s. Second, given the widespread perception that supranational fiscal rules have failed in Europe, we study the record of national fiscal rules, fiscal councils and gradual improvement of public finances, as implemented by Sweden for more than a decade. Third, given the
challenges raised by ageing populations and budget pressures in several euro area countries, we assess the experiences with occupational pension schemes in Denmark.