Introduction

Abstract

Sweden might be best known as the home of film director Ingmar Bergman, and — for better or worse — as the prototype welfare state. What might be less well known is that Sweden recently implemented the most far-reaching tax reform in any western industrialized country. Although Sweden was a latecomer to the bandwagon of worldwide tax reforms of the 1980s, with the US Tax Reform Act of 1986 (TRA86) as a celebrated example, the architects of the Swedish tax reform of 1991 (TR91) applied the strategy of rate cuts cum base broadening in an unusually thorough manner. Under the catchy slogan ‘tax reform of the century’, marginal income taxes were dramatically lowered, and various tax shelters eliminated. According to pre-reform estimates, the rate cuts entailed a revenue loss on the order of six per cent of GDP. Measured in this way, TRA86 stands out as a relatively modest endeavour, with a projected revenue loss of 1–2 per cent of GDP due to rate cuts.

This chapter is a slightly shortened version of the article ‘Tax reform of the century — the Swedish experiment’, published in National Tax Journal, 49 (December 1996), 643–64.