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Industrial Policy, Employer Size and Economic Performance in Sweden

IFN Working Paper No. 436

Freeman, R.B, Swedenborg, B. and Topel, R. (eds.), The Welfare State in Transition, Chicago: University of Chicago Press, 1997

36 Pages Posted: 11 Nov 2012  

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER)

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1995

Abstract

The pre-1990 Swedish tax system strongly disfavored younger, smaller and less capital-intensive firms and sectors and discouraged entrepreneurship and family ownership of businesses in favor of institutional ownership. Credit market regulations, the national pension system, employment security laws and centralized wage setting in Sweden reinforced the distortionary impact of the tax system. We describe the relevant Swedish policies and institutional arrangements, and explain why attendant distortions are likely to have hampered the efficient allocation of resources, reduced productivity, and retarded economic growth and recovery.

We also develop evidence on the consequences of these distortions for the size structure and industrial distribution of employment. Taking the U.S. industrial distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden’s employment distribution is sharply tilted away from lower wage industries, and industries characterized by greater employment shares for smaller firms and establishments. Compared to other OECD economies, Sweden has the lowest rate of self-employment, a dominant role for larger firms, and highly concentrated ownership and control of private sector economic activity.

Keywords: Industrial Policy, Size Distribution, Industry Structure, Swedish Economic Performance

JEL Classification: L52, J21, H30

Suggested Citation

Davis, Steven J. and Henrekson, Magnus, Industrial Policy, Employer Size and Economic Performance in Sweden (August 1995). Freeman, R.B, Swedenborg, B. and Topel, R. (eds.), The Welfare State in Transition, Chicago: University of Chicago Press, 1997. Available at SSRN: https://ssrn.com/abstract=2173704

Steven J. Davis

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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Magnus Henrekson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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