Incomes Policies and the Norwegian Economy 1973-93

Abstract

During the second half of the 1970s there was massive government interference in wage and price formation in Norway. Incomes policies changed in the first half of the 1980s - the hey days of "dynamic tax policies" in Norway - and during the second half of the 1980s new direct interventions in wage formation were implemented. These episodes of incomes policies are discussed and their empirical importance is assessed in the econometric price and wage equations of a large scale macroeconometric model of the Norwegian economy. Model simulations show that while price regulations generally led to an expansion of output and loss of cost competitiveness, wage regulation produced both output expansion and gain in competitiveness. The dynamic tax policy implemented in Norway was less successful and led to both higher prices and wages as well as lower output.