by Andreas Bergh & Magnus Henrekson
Wall Street Journal
July 10, 2010
Americans are debating whether to substantially expand the size of their government. As Swedish economists who live in the developed world's largest welfare state, we urge our friends in the New World to look carefully before they leap.
Fifty years ago, Sweden and America spent about the same on their government, a bit under 30% of GDP. This is no longer true. In the years leading up to Sweden's financial crisis in the early 1990s, government spending went as high as 60% of GDP. In America it barely budged, increasing only to about 33%.
While America was maintaining its standing as one of the world's wealthiest nations, Sweden's standing fell. In 1970, Sweden was the fourth richest country in the world on a per capita basis. By 1993, it had fallen to 17th.
This led us to ask whether Sweden's dramatic increase in the size of government contributed to its sluggish growth. Our research shows that it did.
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