Fiscal Policy Decision-Making during COVID: Experiences from the Nordic Countries PDF Free Download
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Fiscal Policy Decision-Making during COVID:
Experiences from the Nordic Countries
Tuulia Hakola-Uusitalo, Torfinn Harding, Göran Hjelm, Svend E. Hougaard
Jensen, Anders Åkerman, and Janne Tukiainen1
7 October 2024
Abstract
Nordic countries implemented very similar fiscal policies during the pandemic despite substantially different
political contexts and decision-making processes. All of the countries were able to follow normal political and
legislative processes, albeit at a faster-than-usual pace. Consensual decision-making and broad support for
pandemic policies were common across the countries. Implemented policies provided generous support to
households and firms, and in some cases to local governments. For this, existing fiscal rules were relaxed. In
relative terms, the Nordic countries’ post-pandemic economic performance has been good. We interviewed
decision-makers and experts who perceived the pandemic fiscal policies as generally successful, although in
retrospect, some support measures were badly targeted, and overall, the support was too generous.
Keywords: COVID, fiscal policy, political decision-making.
JEL codes: H12, D72, D73
1 We thank Torben Andersen, Lars Calmfors, Nora Sánchez Gassen and for comments, and Robert Pylkkänen and Samu
Kantola for research assistance. We are grateful to Nordregio for funding and for publishing the working paper version
of this article as a policy report (Hakola-Uusitalo et al. 2024). Harding and Åkerman thank The Research Council of
Norway project 326000 for generous research funding. Hakola-Uusitalo: Acting Director General, VATT Institute for
Economic Research, tuulia.hakola-uusitalo@vatt.fi. Harding: Professor, University of Stavanger Business School,
torfinn.harding@uis.no. Hjelm: Head of Agency, Swedish Fiscal Policy Council, goran.hjelm@fpr.se. Hougaard Jensen:
Professor, Copenhagen Business School, shj.eco@cbs.dk. Åkerman: Professor, University of Stavanger Business School,
anders.akerman@uis.no. Corresponding author: Tukiainen: Professor, University of Turku, janne.tukiainen@utu.fi.
Rehtorinpellonkatu 3, 20500 Turku, Finland.
1. Introduction
Welfare goals of the Nordic countries are broadly similar. Encompassing social security and publicly funded
welfare services are financed with relatively high taxes. This is supported by high employment rates. Even if
the Nordic countries are similar, there are also significant differences between them. In this paper, we flesh out
both similarities and differences in economic policies and outcomes in the COVID period. We describe the
institutional frameworks these countries had, and study how the fiscal policy decisions were made. We focus
on the four big Nordic countries (Denmark, Finland, Norway and Sweden), and compare the roles of the
government, opposition, and experts in the political decision-making during the COVID crisis.
Our main approach relies on semi-structured interviews with experts, civil servants, politicians,
and their staff. We ask whether established forms of fiscal policy decision-making were over-ruled during
COVID. For example, were the decisions consistent with existing fiscal frameworks, and did the government
and opposition play their usual roles? We also ask what other factions of society influenced the decision-
making in the COVID years. For example, what were the roles of economists, other experts, and various
interest groups and organisations?
In the end, we try to assess the long-run implications of the COVID period for future economic
policy in these four Nordic countries. As we describe the subsidies that were given as well as their impact1, we
also try to assess whether the standards shifted on how the decisions should be made.
Fiscal policy is only part of the economic picture. In the pandemic, public health policies carried
most weight, also from the economic perspective. Moreover, monetary policy played an important role in
setting the scene for domestic fiscal policy.2 Low interest rates created an illusion where fiscal policy could
operate without a binding intertemporal budget constraint. Hence, we acknowledge the importance on other
policies, but in this article, we focus almost solely on fiscal policy.
2. Political decision-making
The COVID pandemic challenged existing legal processes, balancing the need for swift policy responses with
the need to maintain democratic norms and accountability. In the basis of our interviews, we can deduce that
even if Emergency Acts were declared and policies were decided with a heightened speed, the big picture of
the democratic processes in the Nordics remained stable. Yet there were also some interesting differences
between the countries. In this chapter, we compare and contrast the roles of the government, opposition and
various expert groups that contributed to the making of the actual policies.
2.1. Governments
The political set-up in the four Nordic countries differed during the pandemic. Denmark, Norway,
and Sweden had minority governments, whereas the Finnish government held a majority in the Parliament. In
Denmark, there was a single party in power, while the rest of the countries had coalitions. In terms of the
ideological orientation, Denmark, Finland, and Sweden were left-leaning or centre-left, whereas Norway
entered the pandemic with a right-leaning government. Hence, the political set-ups were very mixed.
Danish economic policies during COVID were steered by a special governmental committee on
economic affairs. It was chaired by the Minister for Finance, with the Minister for Taxation, the Minister for
Employment and the Minister for Industry, Business and Financial Affairs as other members. This “extra”
committee worked in parallel with the standard decision-making bodies, for example, the Committee on
Economic Affairs which was also chaired by the Minister of Finance. Contrary to the standard procedures, the
1 Yet the pandemic is one observation, and therefore inference in the traditional sense is not possible.
2 See Rangvid (2024) in Calmfors and Sanchez Gassen (2024, eds) for a chapter on monetary policy.
special committee on economic affairs related to COVID met without the usual cross-ministry preparatory
meetings, and matters were discussed until a decision was reached.
The Finnish government also nominated a ministerial group to coordinate policies related to COVID.
As this committee did not solely focus on economic affairs, the public health policies were in the forefront. In
the economic affairs the ministerial economic aides in Finland held an unusually prominent role, as they
handled the informal negotiations between the ruling parties. This modus operandi was not caused by COVID
since it started before the pandemic. but the structure was maintained throughout the crisis years.
In Norway, economic affairs received less attention than normally, as the Ministry of Finance played
a relatively less important role. As elsewhere, health concerns were at the forefront. The central government
placed a high level of trust in various stakeholders and was guided by the notion that in the national emergency,
everyone cares about the greater good.
In Sweden, the government normally makes decisions weekly as a collective. During COVID,
the collective decision-making system was formally maintained, but in practice, an existing rule was deployed
and the government was able to act as long as five or more ministers were present. In Sweden, the political
set-up was governed by the fact that the minority government had to negotiate every extra amendment budget
with the cooperating parties. This meant intensive cooperation between the economic and political
spokespersons. Lower-level political officials for the four parties had scheduled meetings every day during the
most intense months of the pandemic. The finance minister played an important role by initiating contacts to
exchange ideas with the finance committee, including meetings every two weeks to discuss current issues due
to the pandemic.”
Of the four countries, it seems that in Denmark the economic affairs in COVID received more
ministerial attention than they did in their neighbors – at least what can be deduced from the organization of
ministerial work. In Norway, the Ministry of Finance played a smaller role than normally and in Finland there
was delegation to the ministerial economic aides. Work structure does not necessarily imply how well the work
is done and the same results can be achieved with different structures, but the structure can also reflect the
relative importance that was given to the issues at hand.
2.2. Parliamentary Oppositions
Opposition parties played diverse roles in the four countries - from collaborative engagement to
critical scrutiny. The role of the opposition was largely shaped by whether there was a majority or minority
government. Also the roles of the oppositions evolved as the pandemic progressed.
In Denmark, the parties in opposition came both from the left and the right. While the ruling Social
Democratic Party did not command a majority in the parliament, it had formed a majority together with the
parties from the left as well as with the Social Liberal Party. The government and the political opposition
generally agreed on the overall economic policy. Economic support packages were largely based on
agreements that spanned the broad political spectrum of the parliament. This was particularly the case at the
early stages of the pandemic. Later, the opposition took a differing stance. In particular, the opposition from
the right argued in favour of a speedier return to pre-pandemic standards.
In Finland, the role of the opposition differed depending on the issue. The opposition was
consulted before the government proposals on the Emergency Act as well as the COVID restrictions.
Consequently, these government decisions were subject to less parliamentary deliberation. In contrast,
economic decisions followed more standard processes where government proposed bills that were debated in
the parliament. A critical stance of the opposition increased as the pandemic progressed. Disagreements with
the government policy focused especially on fiscal and employment policies. The parliamentary opposition’s
critical role culminated in three votes of confidence on government’s economic policy (VK 2/2020 vp, VK
2/2021 vp and VK 7/2022 vp).
The functioning of the central government with regards to the parliament (Stortinget) in Norway
was not fundamentally altered during the COVID. The political debate continued, as did the opposition’s
scrutiny of the government’s policy decisions. In certain instances the parliament overturned the government
proposal as it is empowered to do. For example, the opposition forced through extensions of some economic
support measures. The impression is that the opposition was bold and often quite specific in their demands.
Many political parties used the increased fiscal leeway to push items from their pre-existing agendas.
The Swedish minority government relied on the Center Party and Liberals for parliamentary
support. The agreement for budget cooperation had been in place with these parties since January 2019. The
arrangement garnered the government enough support because the rest of the opposition would have needed a
joint proposal to bring down the government one. Extra amendment budgets needed to be negotiated between
the government and the cooperating parties. The collaborative arrangement was terminated in the summer of
2021 when the Liberals left the cooperation. So, the government’s budget for 2022, as presented in autumn
2021, and the government’s 2022 spring budget, were rejected in favor of the opposition’s budget.
Parliamentary oppositions had the biggest role in Norway and Sweden as they had cases when
the government proposals were overturned in the parliament. In Sweden this happened on two budget bills
which obviously had a great impact. The minority government in Denmark faced lesser challenge from the
opposition and in Finland the majority government tradition left the opposition less room for maneuver when
compared to its neighbors.
2.3. Experts
There tends to be big reliance on expert information in policy preparation in the Nordic countries. Yet the
role and the extent of committee structures and expert groups varied between the countries somewhat during
the COVID.
In Denmark, at the start of the pandemic, health experts provided crucial data, even if the ultimate decisions
were made by the politicians. On the economic issues, the Danish central bank and the present and the past
chairs of the (independent) Danish Economic Council were consulted. This was the case, for example, on the
volume of the support measures, the government’s borrowing capacity and the creditworthiness. Later in the
pandemic, a special expert group of three economics professors estimated the effects of phasing out the
economic support schemes while re-opening the society (see Andersen et al. 2020a, 2020b). Unlike the
Norwegian Covid committee report, the Danish reports were drafted solely by economists. Yet the group used
the work of the health experts also – in particular, epidemiological work that tracked and predicted the path of
the pandemic.
In Finland, the government initially wanted to rely solely on government officials to formulate the basis
of the COVID exit strategy. This task was given to the state secretaries and chiefs of the ministries. Yet to
complement the government officials’ work, a group of four economists was nominated to work on the
economic issues. This group came up with a pivotal model on targeted business support. They also gave
proposals on the magnitudes how to first stimulate the economy to be followed by a suggestion on restrictive
measures when the economy starts to recover.
As is traditional in Norway, the committee system was used extensively from early on. One influential
committee, led by economics professor Steinar Holden, was asked to assess the economic consequences of the
health measures implemented to curb the spread of the virus. This committee delivered eight reports – the first
in April 2020 and the last in April 2022. A large range of issues was covered, for example, the macroeconomic
consequences of the health measures, the labour market impacts of the restricted border crossings and the order
in which the vaccines were distributed. Work was done under high pressure as there was a pressing need for
speedy information and the previous work was often scarce. Both Statistics Norway and Norges Bank (the
central bank) provided assistance with economic modelling. This helped with transparency and communication
of the uncertainty involved. Moreover, as early as in April 2020, the Norwegian government established an
independent Koronakommisjonen (the Corona Commission). This broad committee was tasked to evaluate the
government’s handling of the pandemic.
The Swedish Public Health Agency (Folkhälsomyndigheten) played a central role in Sweden
during the pandemic. Unlike in most other countries, the health officials presented the restriction measures to
the Swedish public. In Sweden, the society was not closed and this mitigated the economic effects. It may also
have been a reason why economics professors were not directly involved in how the health-related measures
were designed. Still, the Minister for Finance in Sweden formed a reference group consisting of six economics
professors. The aim was to include academic expertise in fiscal policy preparations. Interviews with the
members of the reference group and political officials described the nature of the group as a general discussion
forum. The discussions with the minister were on the principles and from the perspective of the Minister, the
discussions were only one input among many. In the interviews, some of the members indicated that they
would have preferred a more active and focused group, which – preferably jointly – could have produced
concrete proposals for the minister. Others pointed out that the minister’s primary concern lay in obtaining
input to influence the ministry’s own preparatory work and the negotiations with other parties. In addition,
several experienced economists in Sweden were very active in the public debate.3 There were several principles
that emerged from their recommendations. First, the crisis was assumed to be temporary, and there was no
need for aggregate demand measures. Second, the state should act as an insurer for both businesses and
employees to minimize the increase in bankruptcies and unemployment. Third, the municipalities should get
the support that they needed. And finally, the economists underlined that the fiscal framework was not an
obstacle to substantially increase public debt.
Expert roles in all countries were significant, but the most organized role already early on seems
to have been in Norway that has a very strong outside expert committee culture. Health experts played an
exceptionally strong role in Sweden, but the role of the economists over there seems to have been the least
structured. Denmark and Finland were somewhere in between.
3. Economic policy
3.1. Employment policy and business subsidies
In the first half of 2020, the Nordic governments adopted a broad range of economic policies in response to
the rapid deterioration in the economic environment for firms and workers. Many of the labour market
measures were based on existing policy instruments, while many of the support measures for firms were
previously untested. Table 1 summarises the types and the extent of policies enacted during the pandemic.4
3 A non-exhaustive list of contributions includes Calmfors (2020, July), Hassler and Krusell (2020, April), Lars Calmfors
in an interview in Kvartal (2020, May), and economists taking part in the webinars arranged by SNS (2020, June) and
Swedish House of Finance (2020, March). In addition, the so-called Restart Commission (Omstartskommissionen 2020,
August) issued a report in which academics analyzed the necessary measures in ten policy areas following the acute phase.
4 Table A1 reports the size of discretionary fiscal policy measures.
Table 1. Overview of policies enacted on labour markets and business support
Denmark
Finland
Norway
Sweden
Labour
markets
Furlough
Yes (for firms
who would have
laid off a large
proportion of
workers)
Yes
(unemployment
benefits paid,
collected partly
from employers
and employees)
Yes (if
firms face
a large
shock)
Yes
Work-sharing
Yes (firms can
reduce time
partially)
Yes
Short-time work
Yes (reduced
working time
possible)
Yes
(reduction
in hours
must be at
least 40%)
Yes (new
policy,
maximum
reduction
in hours
20–80%)
Households
Higher unemployment
benefits
Yes Yes
Lower demands to
qualify for social safety
net
Yes Yes Yes Yes
Firms
Support for fixed costs
Yes
Yes
Yes
Yes
Deferred tax and VAT
Yes
Yes
Yes
Yes
Sectoral support
Yes
Yes
Yes
Yes
Support for self-
employment
Yes Yes Yes Yes
Reduced payroll tax
/employer contribution
Yes Yes Yes
Irrespective of the differences in the political set-up or the expert roles, as described in the
previous chapter, economic instruments that were used in the pandemic were similar.5 Differences in the
policies were more evident in the levels of compensation rather than the type of policy (for the differences in
expenditure in a number of categories as a share of GDP see the Annex). In general, the expansionary policies
were very large. Some policies expanded existing schemes, but many were entirely new. Many interviewees
and expert reports considered the policies appropriate, especially given what was known at the time. Yet some
of the policies were less well-suited.
The support provided to labour markets and households primarily consisted of temporary wage
compensation and job-retention/furlough schemes. This allowed firms to temporarily reduce labour input
without having to lay off workers permanently. There was also increased support for the self-employed and
improvements in unemployment insurance. Even with the hindsight, our interviewees perceived the labour
market policies as fairly appropriate. They were implemented fast, they were well designed, they were deemed
successful in softening the blow to the households, and the policies were mostly phased out in due course.
Especially in Denmark and Finland, also the trade unions played an important role in reaching tripartite
agreements.
Firms received support for their fixed costs and loans. The higher the relative loss of revenue, the higher
the share of the costs that was compensated. The levels of direct support were comparable across the four
countries, although they were the lowest in Finland and the highest in Sweden and Norway. Tax credits were
also offered, in the form of an option for firms to delay tax payments, reductions in payroll taxes, and lifted
penalties for late tax payments. Ekholm et al. (2022) find that the most well-targeted schemes involved support
for fixed costs and rents, which were granted in sectors that suffered the largest drops in turnover. The least
5 For a more complete comparison, see Calmfors and Sanchez-Gassen (2024).
well-targeted scheme was the payroll tax reduction as it did not take into account how much the shock affected
the recipient and actually rewarded those with a lesser shock. A clear failure in targeting was the first Finnish
firm support scheme that worked via business development subsidies. This scheme was later replaced by a
scheme that was better targeted.6
3.2. Support for the local governments
The Nordic countries’ governance structure with regards to central and local governments varies greatly
between the countries. Hence, the differences concerning support for local governments for Covid expenditures
varied greatly taking into consideration the governance structure of the country.
Denmark, with the most centralised structure, compensated its municipalities in 2020 and 2021 additional
expenses related to an increased need for cleaning, testing capacity, contact tracing, personal protective
equipment, etc. The total compensation amounted to only 0.2% of the 2020 GDP (IMF, 2021).
Finland, in contrast, provided about 1.3% of GDP in 2020 and about 0.96% of GDP in 2021 extra funding
for the municipalities – in total for the two years 2,4% of the GDP of the year 2020. The healthcare at the time
in Finland was provided by the municipalities, so the central government wanted to shoulder the burden and
ensure that the municipalities did what was needed. Initially, in Finland, the local government support was
grants that had no conditions attached. As the bad targeting became clear and the support was deemed
excessively generous, the support system was changed to cover the actual increases in, for example, the
healthcare costs rather than give a bloc grant. This required a new grant model, as since the 1990s, all central
government funding of the municipalities had only been in the form of general grants.
In Norway, sectors with critical societal functions received 0.9% of GDP both in 2020 and in 2021.
Therefore, in total, according to the IMF, 2021, local governments in Norway received about 1.8% of GDP in
discretionary funding.
In Sweden, the municipalities received supplements of approximately 0.8% of GDP in 2020 and
approximately 1.5% of GDP in 2021.7 So the total of 2,3% of the 2020 GDP for the two years (IMF, 2022).
These amounts can be compared with the total of 4% of GDP in central government grants in the 2019 budget,
i.e. the year before COVID broke out. The supplementary support turned out to be too generous – the surplus
in the municipalities averaged 0.4% of GDP in 2020–22. In the last two decades, a surplus on this scale had
only occurred once before, in 2005.
On the municipal support Finland and Sweden were the ones who had the most generous discretionary
spending which turned out to be excessively generous as the municipalities ended up with surpluses during the
crisis. Danish local government structure made the local financing close to a non-issue unlike in the other
three.
3.3. Fiscal rules
All the Nordic countries have fiscal rules that try to ensure fiscal stability in the medium and long run. These
rules cover expenditure ceilings, debt limits, limits on structural deficits, limits on actual deficits, and/or other
rules for using public funds. The details of the rules differ between the countries. In addition to the national
rules, EU member states are also bound by the EU fiscal framework.
Many of the fiscal rules were subjected to unforeseen duress during the pandemic, as they were
not designed for such extreme circumstances. Health-related fiscal expenditure was substantially higher than
in normal times. As described in the previous chapters, countries also spent much more than usual on business
support, social security, border controls, etc. Hence, it was clear that even if the fiscal rules included escape
clauses, the COVID years severely tested the resilience of those rules. The EU fiscal rules were also put on
hold.
Table 3 lists the fiscal rules of the Nordic countries, indicates whether there were irregularities
during the COVID years, and briefly describes them.
6 According to our interviews, the decision-makers were somewhat aware of the undesirable properties of the first
support scheme, but their priority was speed rather than resolving the poor targeting.
7 In current prices, 2020 and 2021 respectively.
Table 3. Fiscal rules and exceptions during the COVID pandemic
Country
(i) EU fiscal
rules apply
(ii) Additional
national fiscal
rules
Irregularities
in fiscal rules
during COVID
Nature of the deviations
Denmark
(i) Yes.
(ii) Yes:
structural deficit
rule,
expenditure
ceiling.
Yes, but within
the escape
clauses.
The national structural balance calculation did
not include COVID expenditure.
Finland
(i) Yes.
(ii) Yes: central
government
expenditure
ceiling.
Yes, substantial
deviation from
the expenditure
rule stipulated
in the
government
programme.
The EU debt threshold of 60% was not met
during the pandemic, and this remains the case
afterwards.
The national expenditure ceiling was
abandoned in 2020; contrary to the rules, the
original ceiling was increased in the middle of
the government term in 2021; COVID
expenditure and, later, expenditure on
security, as well as aid to Ukraine, were
exempted from the expenditure ceiling.
Norway
(i) No.
(ii) Yes: 3% of
the petroleum
fund (measured
in NOK) is used
to cover a fiscal
deficit.
Yes, but the rule
allows for
counter-cyclical
spending, with
deviations from
3% over the
business cycle.
Money from the petroleum fund covered
deficits corresponding to 3.7% of the fund in
2020 and 3.3% in 2021.
Sweden
(i) Yes.
(ii) Yes: debt
anchor, surplus
target (average
over the
business cycle),
plus central
government
expenditure
ceiling.
Yes, but within
the exemption
clauses.
The expenditure ceiling was increased in the
middle of the government term. While
exceptional, this was not against the rules.
During the pandemic, expenditure directly related to COVID was excluded from the calculation
of the structural balance in Denmark. This can be seen as discretionary fiscal support in response to the
pandemic. The official structural balance was 0.5% of GDP in 2020, -0.3% of GDP in 2021 and -0.2% of GDP
in 2022. However, if expenditure related to COVID is included, the structural balance was -1.2% of GDP in
2020, -2.1% of GDP in 2021, and -0.7% of GDP in 2022. Altogether, the impact of the COVID pandemic on
public finances in Denmark was manageable and the exemptions from the fiscal rules were considered to be
within the escape clauses.
In Finland, after declaring the Emergency Act in March 2020, the government announced that
the expenditure ceiling would be set aside. As the EU rules were also suspended, there were no rules on the
fiscal framework in place. The plan in the first half of 2020 was to return to the expenditure ceiling, but in
December 2020, it was decided that COVID-related expenditure would be treated as additional to the
expenditure ceiling throughout 2021, and the exceptions (also non-COVID related) were later extended to the
years 2022 and 2023. Given all the exceptions, it is hard to deduce whether the expenditure ceiling fulfilled its
normal expenditure-constraining role after the height of the crisis in Finland, and whether it was the non-
functioning exception clause that made the whole expenditure rule dysfunctional.
The fiscal framework in Norway is based on the expected real return of the state’s sovereign
wealth fund (“the petroleum fund”). The structural non-petroleum deficit of the central government budget
should be in line with the expected real rate of return of the fund. Since 2006, transfers from the petroleum
fund have only twice exceeded the expected real rate of return limit – in 2020 and 2021.8 Money from the
petroleum fund covered a deficit corresponding to 3.7% and 3.3% of the fund in 2020 and 2021. This compares
with 3% over the period 2007–19 and 2.7% in 2022. In contrast to the other Nordic countries, Norway does
not have an explicit expenditure rule, nor does it have a medium-term plan in addition to the yearly budget.
During the pandemic, Swedish fiscal policy adhered to the national rules and stayed within the EU rules.
Yet when the pandemic hit in March 2020, it was the first time the expenditure ceiling in Sweden was changed
in the middle of a government’s term of office. The ceiling was increased by as much as SEK 350 billion
(25%) in 2020 and SEK 250 billion in 2021 (Swedish Fiscal Policy Council 2022). As it turned out, these sums
were larger than was necessary and reflected a desire to have sufficient room for manoeuvre in uncertain
circumstances.
Out of the four it is therefore only Finland where it was clearly stated that the fiscal framework clearly
failed during the crisis. Also, other countries made exceptions to their fiscal rules, or stretched their
interpretations to be able to cope with the crisis. In Finland, however, there was no return to the original
framework even when the crisis started to abate, and the exceptions were extended to other circumstances as
well, so that there was no clear fiscal anchor.
4. Economic developments
4.1. GDP
The four countries saw broadly similar GDP developments during and after the pandemic with Sweden having
the biggest drop in activity in the second quarter of 2020 (Figure 1). All the four economies bounced back
quickly with the best recovery in Denmark. Except for Finland, the GDP growth in the other three was clearly
above the EU27 average during the first year of the pandemic.
8 Note that the rule was 4% until 2017. From 2018, the rule was changed to 3%, as the expected real return was adjusted
downwards from 4% to 3%.
Figure 1. GDP, index Q4 2019 = 100
Source: Eurostat.
After the initial crash, the rather quick recovery, starting as early as Q3 2020, was not in the forecasts. Figure
2 shows GDP growth forecasts for 2020 at various points in time during the year. Starting in late 2019, in all
four countries, 2020 was expected to be a quite normal year, with growth rates ranging from 1% in Sweden to
2.4% in Norway. Following the outbreak of the pandemic, the earliest forecasts all over-predicted the severity
of the shock9. The pessimism increased in Finland and Sweden in June, but after that, the forecasts became
less and less gloomy as the year went on. The outcomes for 2020 turned out to be between -2% and -2.8% -
considerably less than the first forecasts after the crash.
9 In addition to the forecast error, better than expected forecasts might also reflect successful economic policies that
were not known in the earlier forecasts.
Figure 2. GDP growth forecasts and actual GDP growth in 2020, percentage
Note: The horisontal axis shows when the forecasts were published (except for the outcome).
Sources: Denmark: Ministry of Finance. Finland: Ministry of Finance. Norway: Statistics Norway. Sweden: National
Institute of Economic Research.
4.2. Employment rates
Employment rates (given in Figure 3) reflect both the overall development of the economy as well as the
effect of the measures described in the previous chapter. The fall during the pandemic was modest compared
to the decline in GDP, which may be attributable to the use of job retention schemes. Except for Sweden, the
falls in employment rates were rather similar in the first year of the pandemic – approximately two percentage
points between Q4 2019 and Q1 2021. After that, the employment rates picked up in all four countries and
were higher in Q2 2023 than Q4 2019.
Figure 3. Employment rate, 15–74 years, percentage
Note: Employment rate is defined as the number of employed divided by the population (aged 15–74 years), expressed
as a percentage.
Source: Eurostat.
4.3. Ranking the Nordic countries’ economic performance
To better understand how the Nordic countries performed in comparison with others in the wake of the
pandemic, we create a ranking of “winners and losers” with the criteria similar to the one developed by The
Economist (2022).10 In this, we compare five performance indicators: (1) GDP; (2) compensation of employees
(i.e. wage or salary, along with the value of the employers’ social contribution); (3) share prices; (4) real
investment (i.e. gross fixed capital formation); and (5) public debt (measured by the general government debt-
to-GDP ratio).11
For each variable, we calculate the mean and the standard deviation of its change between Q4
2022 and Q4 201912 and assign a score from 0 to 5, depending on the “extremity” of the value of the variable.
Score 5 implies that the variable in question grew more than 2 standard deviations faster than the mean of the
variable in the whole sample, the score 4 between 1-2 standard deviations faster than the mean and so forth.
This calculation of the whole scheme is explained more in the table in the annex. Table 4 shows (a) the country
rankings; (b) the variables on which the score is based; and (c) the total score.
10 The magazine does not disclose the details of its methodology. Ours is described briefly next to the table. Longer
description can be found in Hakola-Uusitalo et al (2024). We also report further details in Table A2.
11 Real growth in GDP is widely used to measure the change in economic activity and to indicate the overall health of the
economy. The total compensation of employees is a proxy for household income and can be seen as a measure of
households’ economic wellbeing. Similarly, share prices serve as a sign of the health of firms. Real investment measures
the business sector’s expenditure (including residential investment) and is intended to reflect the firms’ expectations for
the future. Finally, public debt reflects the state of public finances.
12 In the case of public debt, the most recent data are from Q3 2022.
Table 4. Performance of selected countries in the wake of the pandemic
Country
ranking GDP Compensation
of employees
Share
prices Investment
Public
debt-to-
GDP
ratio
Total
score
1. Denmark
7.28
16.18
46.24
32.36
-9.35
22
2. Norway
5.29
14.00
35.52
-0.83
-2.84
16
3. Sweden
4.75
13.99
18.02
9.15
-1.29
16
4. Australia
7.20
19.52
4.20
7.57
9.31
15
5. US
5.03
20.26
11.05
2.26
7.64
14
6. Italy
1.90
10.92
4.13
22.70
9.02
12
7. Finland
2.46
12.94
11.76
3.71
10.28
11
8. France
1.17
12.53
7.30
4.63
14.42
10
9. UK
-0.59
16.77
-0.82
3.44
8.73
10
10. Germany
-0.03
11.74
-8.35
-2.78
12.73
9
11. Japan
0.84
2.43
15.11
-1.09
12.97
9
12. Spain
-0.95
8.64
-14.56
-6.84
18.53
6
Note: The figures indicate percentage change between Q4 2019 and Q4 2022, along with the total score for each country.
Data are from various OECD data sources. GDP and Gross Fixed Capital Formation (GFCF) are both measured in national
currency, using the expenditure approach. Compensation of employees is measured in national currency in current prices.
Share prices are collected in national currency and expressed in the OECD base index form, to allow for comparison
across countries. Public debt is measured by total gross general government debt as a percentage of GDP. In the case of
public debt, the most recent data are from Q3 2022.
Denmark, Norway, and Sweden are the top three performers among the countries studied. Based
on the chosen indicators, these three countries fared better than the major European economies, the US,
Australia, and Japan. While Norway and Sweden seem to have performed equally well, Denmark receives a
considerably higher score than any other country and performs exceptionally well across all indicators. Finland
is ranked in the middle, with an average performance.
Looking at each of the indicators, Denmark, Norway and Sweden all perform well in terms of
real GDP, compensation of employees, share prices and public debt. These three countries all surpassed the
pre-pandemic level of GDP, experienced growth in the compensation of employees and share prices and
brought down the public debt-to-GDP ratio. The development of real investment, however, differs between
them. Investment in Denmark has been much stronger than in the others.13 Swedish investment indicator
performed only slightly better than the average, and the Norwegian one14 did not completely recover from the
pandemic during the time period studied.
It is good to note that the results should not be interpreted as causal. Although the pandemic
was a global shock, the (macroeconomic) effects observed in each country depend not only on the policy
undertaken but also on the structure of the economy and on non-economic developments and policies. Hence,
the ranking cannot be directly considered as the evidence of a success of the economic policy.
5. Conclusions
We document fiscal policies implemented in the Nordic Region during the COVID pandemic and analyse how
those political decisions were made. The Nordic governments underwent the Covid period with different
policy-making structures: one majority and some minority governments, different political orientations,
different roles played by the opposition and even different formal reliance on the outside experts.
Despite the differences, there were a lot of similarities in the economic policies that the countries
undertook during the Covid. Extensive fiscal support of households and firms, support of the local
13 perhaps due to its large pharmaceutical industry
14 Norway’s real investment figure masks an increase in investments in the mainland economy and a decline in the “offshore
economy” (the petroleum sector).
governments, and interpreting and extending fiscal rules that were not designed for these kinds of extreme
circumstances. It is difficult to make a reliable comparison of which country had the greatest support and
whose support was the best targeted. It is possible to only come up with examples of where the targeting failed
and fiscal support levels became excessive. Overall, the implemented policies were perceived as successful,
although some of the support to firms was badly targeted, and the level of support provided to both firms and
local governments was perhaps over-generous. It is likely that the excessive support was related to the
economic outlook, which seemed very bleak in the beginning of the crisis. However, the outlook improved
quicker than was initially expected. Moreover, some interviewees also stated that the excessive support levels
were to be expected, but they preferred that to under-support. The worst-performing support policies appear
to have been those that were directed at firms and implemented very rapidly at the beginning of the pandemic.
Of the macroeconomic outcomes, GDP, employee compensation, share prices, employment and
even investments developed relatively favourably in the Covid period in Denmark, Finland, Norway, and
Sweden. The most evident macro problem is the Finnish debt level, which is not only due to the Covid, but
was certainly not eased by it. Even if it is unclear what is the cause and the effect, our comparison reveals that
Finland also had the greatest problems with its fiscal framework.
Taking a step back and looking at the Covid period with the hindsight, institutions functioned,
expert knowhow was utilized, social safety nets worked or could be patched quickly, and there was no mass
destruction of the basic economic infrastructure as was the case with some earlier crisis. But could all that have
been achieved more economically? The answer is most likely yes. So even if it is impossible to prepare for the
next crisis, we hope that these types of comparative studies pave a way to an improved policy in the future.
Overall, the Nordic countries' experiences underscored the significance of robust fiscal
foundations, targeted policy interventions, and adaptive governance structures in navigating crises and
fostering economic resilience. In terms of democratic processes in economic decisions, countries were able to
follow normal legislative processes, albeit at a faster-than-usual pace. Our interviews do not offer much direct
evidence on the reasons behind these similarities, despite the differing political environments. We only have
four observations and no research design to illuminate them, but key similarities between the countries could
be consensual decision-making, broad support for pandemic-related health and economic policies, strong state
capacity, flexibility in the existing systems and high trust in government and their role in Covid decision-
making is one avenue for future research.
6. References
Andersen, T.M., Svarer, M. and Schröder, P. (2020a). Rapport fra den økonomiske ekspertgruppe vedrørende
udfasning af hjælpepakker. Danish Ministry of Finance.
Andersen, T.M., Svarer, M. and Schröder, P. (2020b). Rapport fra den økonomiske ekspertgruppe vedrørende
genåbning af Danmark. Danish Ministry of Finance.
Calmfors, L. (2020). Coronakrisen kan bli långvarig, World in Property, July 17.
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Countries, Nordregio Nordregio report 2024:12.
Ekholm, K., Nordström-Skans, O., Persson, T. and Åkerman, A. (2022). Företagsstöden under pandemin,
Background report to the Corona Commission. SOU 2022:10.
Hassler, J. and Krusell, P. (2020). I ett krigsliknande läge hjälper inte stimulanspolitik, Dagens Nyheter, April
2, from https://www.dn.se/debatt/i-ett-krigsliknande-lage-hjalper-inte-stimulanspolitik/.
Hakola-Uusitalo, T., Harding, T., Hjelm, G., Hougaard Jensen, S. E., Åkerman, A., and Tukiainen, J. (2024).
Fiscal Policy Decision-making in the Nordic Countries during COVID-19Economic. In Calmfors, L. and
Sanchez Gassen, N. (Eds). Policy beyond the Pandemic in the Nordic Countries. Nordregio report 2024:12.
Holden, S. et al. (2020). COVID – samfunnsøkonomisk vurdering av smitteverntiltak – andre rapport,
Helsedirektoratet (Norwegian Directorate of Health)
IMF. (2021). Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID Pandemic. The
database summarises key fiscal measures taken or announced by the governments of selected economies in
response to the pandemic as of September 27, 2021
Kvartal. (2020). Fredagsintervjun. Podcast with Professor Lars Calmfors, May 22.
Omstartskommissionen. (2020). Idéer för ett starkare Sverige. Stockholm: Ekerlids Förlag.
Rangvid, J. (2024). Does the Choice of Monetary Policy Regime Matter? Evidence from the Nordics, in
Calmfors, Lars and Nora Sanchez Gassen (Eds), 2024, Economic Policy beyond the Pandemic in the Nordic
Countries, Nordregio.
SNS (2020). Forskarsamtal om coronakrisen. June 1, 2020, Centre of Business and Policy Studies.
Swedish House of Finance. (2020). The Economic Impact of the Coronavirus Pandemic. Webinar. Retrieved
30 March, 2020, from https://www.hhs.se/en/houseoffinance/outreach/industry-seminars/2020/de-
ekonomiska-konsekvenserna-av-COVID/.
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Oral sources
Finland: Two government officials, two ministerial economic aides, one expert economist.
Sweden: Government Office: Two politicians and one government official. Reference group of the Minister of
Finance: Five participants. Finance Committee (parliament): Two government officials.
Norway: One cabinet minister.
Denmark: Three government officials, one official from the Danish central bank and two independent
economic experts.
Annex
Table A1. Size of discretionary fiscal policy measures during the pandemic (2020 and 2021), percentage
of 2020 GDP
Denmark
Finland
Norway
Sweden
Additional
spending/foregone
revenues
Health sector
1.7
0.8
0.8
Non-health sector
3.4 3.0 6.6 3.4
Accelerated
spending/deferred
revenue
13.7 0.2 6.7
Liquidity support
Equity, loans, asset
purchases
12.1 0.5 2.0 0.2
Contingent liabilities
Guarantees
3.5
5.2
2.6
5.0
Quasi-fiscal
operations
1.7
To local
government
0.2 2.3 1.8 2.3
Source: IMF Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID Pandemic. The database
summarises key fiscal measures taken or announced by the governments of selected economies in response to the
pandemic as of September 27, 2021.
Table A2. Ranking methodology
Growth rate interval of
variable
Assigned score
(GDP, compensation of
employees, share prices,
investment)
Assigned score
(public debt-to-GDP ratio)
[+ 2,∞[
5
0
[+,+ 2[
4
1
[,+[
3
2
[ − ,[
2
3
[ − 2, − [
1
4
]− ∞, − 2[
0
5
Table A2 summarises the methodology used in the ranking in section 4.3. For example, a country scored 0 if
its GDP growth rate between Q4 2022 and Q4 2019 was below the mean growth of the sample minus two
times the standard deviation of growth in the sample. It scored 5 if its GDP growth was above the mean growth
plus two times the standard deviation. A country scored 4 for growth between one and two standard deviations
above the mean and 3 for growth between the mean growth and the mean growth plus one standard deviation.
When the growth of a variable was below the mean growth rate of the sample a country scored 2 for growth
between the mean growth and the mean growth minus one standard deviation and 1 for growth between one
and two standard deviations below the mean growth.
