Macroeconomic Control of Local Governments in Scandinavia: The Formative Years

The three Scandinavian countries have been able to radically decentralize their public sectors without losing the ability to control macroeconomic performance. The explanation of this puzzle is that, in all three countries, institutions have been established to coordinate economic activity levels at the local level with macroeconomic policy goals at the central level. The article investigates how these institutions were established, and pays special attention to the precise nature of these institutions since they show interesting differences among the otherwise very similar Scandinavian countries. The article pursues the thesis that institutional legacies in intergovernmental relations shape institutions like these, unless decision makers face an institutional tabula rasa. Alternative explanations are briefly considered, but the article concludes by supporting the historical approach to politics.