Institutions and Infrastructure Investments – A Case Study of the Budget Process Reform in Sweden

Sammanfattning: This thesis explores the relation between budget institutions and the composition of public expenditure, more specifically quantitative budget restrictions and public investment in infrastructure. In the study existing theory is developed and additions are suggested. Thereafter a test of the theoretical implications of the additions is carried out by examining how infrastructure investment is affected by quantitative fiscal restrictions in Sweden. The study is conducted as a case-study approach investigating Sweden’s governmental budget process, relying on a varied pool of empirical data. Initially, the development of investment in infrastructure, before and after the introduction of reformed budget institutions, is studied. Then the development of alternative methods of financing infrastructure investment is investigated. The findings indicate that investment in infrastructure indeed decreases as a result of quantitative budget restrictions. Most, but not all, types of examined alternative methods of financing infrastructure have increased in use. Our empirical findings also give a further indication of a causal link between the quantitative fiscal targets and the development of alternative financing. Thus, quantitative restrictions seem to not only reduce the level of public expenditure but also have effects on the composition of expenditure.