With Southern European countries facing a huge crisis, people tend to make comparisons with countries that have good macroeconomic performance, in this case with the Nordic countries. So how is the Nordic Public Sector comparing with the Portuguese one?
As it is common knowledge, the size of the public sector (using tax revenues as % of GDP) of the Nordic countries, in which Sweden is included, is higher than those in the majority of the other European countries. Such difference is visible in Graph 1 when directly comparing Sweden with Portugal. Another big difference between those two countries is the amount spent in Public Social Expenditure, which is visible in Graph 2.
Would a Welfare State like the Swedish one work in a country like Portugal, with high tax revenues and huge spending supporting education, health and employment?
It is believed that the negative effects of high tax revenue are mitigated by the huge social spending made by the Swedish State. If that was the only factor to implement such a Welfare State, than Portugal would also be able to implement it, which is not the case.
The powerful and successful Welfare State is backed up by a huge level of trust and confidence in the government and its institutions, adding up with a low level of corruption. Institutional factors, exogenous factors to the economic system and successful economic policies also helped to achieve success. The fact that Sweden also passed through a huge economic crisis in the mid 90’s, helped them to learn to find the right path to diminish the effects of the current crisis and thrive through.
So it can be said that Portugal is still years behind Sweden regarding the Public Sector and that if it wants to follow this model, not only economic reforms would have to be implemented but also changes in the society’s DNA would have to be made, something that is intrinsic in our society and that would be almost impossible.
Graph 1 – Tax Revenue as % of GDP (Source: OECD)
Graph 2 – Public Social Expenditure as % of GDP (Source: OECD)