Econ110bhfinal - Sweden was the fi rst country in the world...

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Sweden was the first country in the world that implemented fiscal policy into the business cycle. Gunnar Myrdal was the prophet and the future governments are his disciples. In a depression there is a fall in all sorts of income. Maintaining the tax rates the same means a reduced tax income for the government, meanwhile a rise in public expenditures are needed to fire up the steam engine of the economy. According to Myrdal, the traditional way of tackling recessions in the 1930’s was to increase taxes and lowering the standards of public activity. The efforts to remain a balanced budget during a deep recession are as useless as riding a bike without wheels. They try to conceal deficits in budget wholes through deferring costs to future periods and hide surpluses by allocating income to previous years. “It is a play of fictitious economies” (Myrdal, 183). Myrdal’s solution to the problem, according to his article Fiscal policy in the business cycle, is transparency and increased governmental influence. There should be increased investments by the government on self-sustainable projects, such as social housing, railroads, power plants, mines, and forest preserves. All the folks in charge of the investments has to create ten year plans, in order to have a blueprint ready for governmental stimulations by deficit spending during recession times. The budget should be split up to two, with one main budget and a second called the capital investment budget. This is to reduce the effect of political cycles and create transparency. Through annual payments from the running budget the capital investment budget invests into self-sustainable investments, which in its turn pays back in dividends. The capital investment budget will be completely separated from the running budget, never to be added into sums. However, there is a budget-equalizing fund that the running budget can lend capital from while running a deficit but the accumulated deficit borrowed has to be paid back within five years or the government goes into default with no option to lend. The budget equalizing fund is in its turn funded partially by the capital investment budget and state-owned companies.
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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Econ110bhfinal - Sweden was the fi rst country in the world...

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