So it surprises many to learn that the Scandinavian country only got to be this way in the last century, and that the catalyst was violent upheaval: two world wars and the Great Depression.
Economic inequality has always been with us, and when you observe a dramatic market compression you can always link it to a disastrous event.
Sweden’s eightfold military build-up during World War II dramatically boosted income tax rates for top earners and corporations.
Whereas fiscal responses to the Great Depression had remained modest, the tax reform of 1939 greatly raised top rates and created a temporary defense tax that became highly progressive only for the highest earners and that was further sharpened in 19.
At one point Germany threatened to bomb Swedish cities unless granted transit concessions.
Later in the war, Germany drew up a contingency plan for an invasion in the event of an Allied incursion into Sweden.Thanks to the threat of war, in a telling departure from the fractious politics of the 1920s and 1930s, these reforms were passed with little debate or controversy as an almost unanimous political decision.In this sense, Sweden did experience a major war mobilization effect that was conducive to the subsequent expansion of the welfare state. 17, 1941 image, the Swedish destroyer Klas Uggla, No.4 left, is seen ablaze after an unidentified accident which destroyed the ship, damaged two others, and killed 33 sailors in Horsfjarden, Sweden.Military mass mobilization, progressive graduation of tax rates, and the targeting of elite wealth on top of income constituted the three main ingredients of fiscal leveling.Popular discontent paved the way for the country’s first Liberal-Social Democrat coalition government, which started to take tentative steps in a more progressive direction under the growing shadow of the Russian Revolution not far from Sweden’s shores.Although Sweden is located at the margins of the European continent, it is adjacent to the major powers involved in both world wars: Germany, Great Britain, and Russia.In World War I, conservative Swedish elites sided with Germany and raked in large profits while food shortages caused by the Entente naval blockade and labor unrest rocked the country.It is very hard, if not impossible, to find any episode of major equalization that is not linked to one of these four types of events.Just as in many other developed countries at the time, external shocks—in the form of war and the Great Depression—acted as critical catalysts for Sweden’s redistributive fiscal reform and the eventual expansion of the welfare state.