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A key feature of the Nordic welfare model is provision of welfare services like care, education and health. They are individual entitlements, and collectively financed. It is a prerequisite that contemporary standards of services are provided; thus the public solution is not a second rate solution used only by those who cannot afford better solutions. Can the Nordic welfare model meet this objective in the future? Increasing productivity and wealth challenge this. Services tend to have lower productivity growth and thus to become more expensive (Baumol's cost disease), but also to have a high income elasticity, and thus demands rise alongside improved material living standards (Wagner effects). The same implies to leisure, implying that tax bases may be eroded. In short, expenditures are on an upward drift and revenues on a downward trend, challenging the financial viability of the welfare model. This seems to leave a conundrum for the welfare state in the sense that the success of the model in improving living standards tends to undermine the possibility of attaining key objectives of the welfare state. It is argued that although the welfare state will be financially strained, these challenges can be met without jeopardizing its fundamental objectives.

Artiklen giver en oversigt over og sammenfatning af lønstrukturkomiteens arbejde og hovedkonklusioner med fokus på analyser af lønstrukturerne og lønudviklingen i den offentlige sektor, effekter og konsekvenser af ændrede lønstrukturer i den offentligesektor, herunder betydningen for den private sektor, samt muligheder for at udvikle løndannelsen i den offentlige sektor inden for rammerne af den danske aftalemodel på det offentlige område.

ABSTRACTTax distortions cause a trade‐off between efficiency and equity. However, taxes not only affect incentives; they also provide implicit insurance, and this may critically affect the efficiency–equity relationship. For a standard labour supply problem it is shown that the insurance effect mutes the sensitivity of labour supply to taxes, which tends to reduce tax distortions and lower the marginal costs of public funds. The relation between incentives and insurance and thus efficiency and equity is flattened by the insurance effect and it may even be non‐monotone. However, the optimal utilitarian policy implies that there is always a trade‐off between efficiency and equity on the margin.

Sweden is a front-runner in defining intermediate targets for fiscal policy (fiscal rules) as well as in setting up an independent fiscal council to monitor and comment on developments. Swedish public finances are among the most sound in the OECD having been able to consolidate public finances and ensure fiscal sustainability, and they have maintained room for fiscal manoeuvre also during the financial crisis. This paper takes a closer look at the Swedish case as the stepping stone for a more general discussion of how to set intermediate targets for fiscal policy and the role fiscal councils may have in strengthening political accountability and thus ultimately credibility of fiscal policy. The Swedish fiscal framework is compared to the fiscal compact for EU countries, and it is argued that it has a number of desirable features.

The universal Scandinavian welfare model offers generous tax financed social benefits. The scheme is associated with workfare elements as a targeting device to direct benefits to those considered deserving. Thereby social insurance and egalitarian outcomes are achieved while work incentives and thus a high employment rate crucial for the financial viability of the model are maintained. The scope for this policy may depend critically on the characteristics of the population (abilities and preferences) and thus be significantly affected by immigration affecting the distribution of characteristics, especially if the model attracts immigrants with particular characteristics. The paper develops a simple model capable of capturing the rationale and essence of the above-mentioned redistribution model and considers its sensitivity and robustness to immigration, which may change the composition of the population in the ability and/or preference dimension.

Recent debates have suggested that taxation is very detrimental to labour force participation and employment. However, some countries - notably the Scandinavian - stand out as contradictions to this view since they have managed to sustain high labour force participation rate despite high tax rates and a generous social safety net. This either refutes the standard incentive argument or leave the Scandinavian countries as a puzzle. This paper argues that both the standard view and the Scandinavian experience can be reconciled when taking into account both the pecuniary and non-pecuniary incentives build into the social safety net. The social safety net in the Scandinavian countries is at the same time both generous and employment conditioned. It is shown that these conditionalities can make high labour force participation consistent with a high marginal effective taxation of labour, and that it on the margin lowers the marginal costs of public funds. Such employment conditionalities make it possible to achieve distributional objectives without jeopardizing the incentive structure.

While assertions are often made that non‐cooperative fiscal policies suffer a contractionary bias, general equilibrium models have shown that the bias is unambiguously expansionary. This paper argues that the latter result relies on a particular and critical way of modelling international trade, and that under a more plausible trade structure, it is possible that fiscal policy is insufficiently expansionary in the non‐cooperative case. Non‐cooperative policy‐making thus implies that fiscal policies are used too little if they expand private employment, and too much if they contract private employment. Inefficiencies in non‐cooperative fiscal policies worsen when product markets become more integrated.