Learning from Sweden: Spending cuts and GDP growth

by Ryan Streeter on January 2, 2013. Follow Ryan on Twitter.

Are spending cuts related to GDP growth. This chart and following commentary from Veronique de Rugy suggests the answer is yes:

de Rugy writes:

The three-country comparison highlights that, while each recorded negative economic growth after the recession, Sweden not only took the largest hit but also experienced the largest rebound by 11 percent (from –5 percent in 2009 to 6.1 percent in 2010).

So what accounts for the difference in outcomes? First and foremost, France has yet to cut spending. In fact, to the extent that the French are frustrated by so-called budget cuts, their only real complaint is that future increases in spending will not be as large as planned. (The same can be said about the U.S. budget.)

By contrast, Sweden has significantly cut government spending without equivalent increases in taxes. Sweden’s finance minister, Anders Borg, successfully reduced welfare spending and pursued economic stimulus through a permanent reduction in the country’s taxes, including a 20-point reduction in the top marginal income tax rate. As a result, Sweden’s economic growth has, of late, trumped every other European country’s. Sweden’s commitment to reform has paid off in economic growth.