Macroeconomic Policy and the External Constraint: The Danish Experience

This paper considers the relation between the external balance and economic policy formation in the context of the Danish economy during the last three decades. The main lines of macroeconomic development, the structure of the economy and economic policy in this period are expounded, and the question of how Denmark arrived at its present foreign debt to GDP ratio of close to 40 persent is posed. Finally, the nature of the external constraint on the Danish economy is addressed. A tentative conclusion is that a significant part of Danish foreign debt could be a reflection of the structure of tax and expenditure policy and demographics; still, current account deficits may cause concern to the extent that they arise from e.g. tax distortions - or for intergenerational distributional reasons.