Boosting Growth in Crisis: Evaluating the Role of Fiscal Stimulus in Sweden’s Pandemic Recovery

Abstract: The Covid-19 crisis presents an opportunity to evaluate the effectiveness of fiscal policy by investigating how fiscal stimuli aided recovery from the pandemic in Sweden. As Covid-19 have led to increased concerns of unsustainable debt levels, questions of how government spending has affected the economic rebound and fiscal sustainability arises. To tackle these questions, I evaluate pre-existing literature on fiscal multipliers and perform a debt sustainability analysis. Based on Sweden’s prevailing macroeconomic conditions, its existing sovereign debt status, and its internationally unique response to the pandemic, the result finds that Sweden had the ideal conditions for implementing fiscal stimuli, allowing for a fiscal multiplier above one. The debt dynamics formulae estimates that fiscal policy did not offset Swedish fiscal sustainability. Hence, fiscal stimuli played an important role in the economic recovery and should be considered again in the future if the central bank is constrained from stimulating the economy at large because of ZLB interest rates.