The Economics of the Service Sector

Completed projects



The purpose of this project was to examine the effects of payroll taxes on employment in the service sector. According to economic theory, the effects on employment are ambiguous. On the one hand, payroll tax reductions stimulate demand for labour in the short run. On the other hand, wages may increase in the long run as they are re-negotiated, which tends to reduce employment.

The effects of a natural experiment in taxation – a reduction of payroll taxes for youth (but not for older employees) during 2007–2009 – are investigated for a particular industry, namely retail. The project considers effects on the number of employees, work hours and wages. Effects on wages per hour (instead of wage bill per employee) and hours have not been considered in the previous literature. Effects on hours may be important in service industries which typically employ workers on a part-time basis.

The project was financed by a research grant from The Institute for Evaluation of Labour Market and Education Policy (IFAU).

Project manager: Per Skedinger

Time period: 2010-2015



Skedinger, Per (2014). Effects of payroll taxes for young workers. Nordic Economic Policy Review, 4 (1), 125-169.


Effects of School Choice

In this project, we test how the option to choose between different schools has affected students’ results. Do school choice and competition between schools lead to better results for all through better quality in all schools, and through a better match between students and schools? Or are there also losers from school choice? School choice in Sweden was widely increased in 1992 when a reform allowed students and parents to choose between different municipal, as well as independent, schools. Previous research has shown that competition from independent schools has led to better results in all schools. However, the effect of school choice between municipal schools has not been evaluated to the same extent, even thought this part of the reform may also have had substantial effects.

Project manager: Karin Edmark
Participants: Verena Niepel, ZEW, Markus Frölich, University of Mannheim

The project was financed by The Swedish Research Council and the Jan Wallander and Tom Hedelius Foundation.

Time period: 2009-2015



Edmark, Karin, Markus Frölich and Verena Wondratschek (2014). Sweden's school choice reform and equality of opportunity. Labour Economics, 30 (October), 129 –142. Link

Wondratschek, Verena, Karin Edmark and Markus Frölich (2013). The short- and long-term effects of school choice on student outcomes – Evidence from a school choice reform in Sweden. IFN Working Paper No 981. Published in Annals of Economics and Statistics, 111-112, 71-102. Link


File sharing, the entertainment industry, and the IPRED-law

We investigate the relationship between file sharing and music and movie sales by evaluating the effects of the Swedish implementation of the IPRED law in 2009.

During the last decade global music sales have fallen drastically. The music industry has claimed that file sharing is the main reason for this. In 2009, the IPRED-law was implemented in Sweden where the aim was to control the widespread practice of file sharing of music and movies. We investigate the effects of the IPRED-law on illegal file sharing of music and movies in Sweden and the indirect the effects of file sharing on music and movie sales.

Project manager: Che-Yuan Liang, IFN and Uppsala University

Participant: Adrian Adermon, Uppsala University

Time period: 2010-2012



Adermon, Adrian and Che-Yuan Liang (2010). "Piracy, Music and Movies: A Natural Experiment.” IFN Working Paper 854.


Incentives in organizations and markets: A development of multi principal agent theory with applications for privatization, competition and outsourcing

This project aims at deepening the study of the intersection between markets and hierarchy/bureaucracy.

This project is partly motivated by a number of questions related to the organization of the public sector that have only been analyzed to a small extent, and also by the lack of a unifying conceptual framwork for studying how incentives are determined in markets, in hierarchies/bureaucracies and in the intersection between markets and organizations. The project aims both to develop theory for how incentives are determined within organizations and in markets, and to apply this theory on questions regarding the organization of public sector services, with a particular focus on Swedish health-care.

Project manager: Fredrik Andersson

Time period: 2009-



Andersson, Fredrik (2010). "On the Cost-vs-Quality Tradeoff in Make-or-Buy Decisions." Working Paper 2010:2. Department of Economics, Lund University.

Andersson, Fredrik (2009). "Make-or-buy Decisions and the Manipulability of Performance Measures." IFN Working Paper No. 815. Published in The B.E. Journal of Theoretical Economics, 11 (1), (Advances), Article 23, 2011.

Andersson, Fredrik (2009). "A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing." IFN Working Paper No. 784.


Public Services from the Voters' Perspective

We study the interaction of voters and politicans regarding public services. How do voters react to changes in prices and supply of public services?

Public consumption makes up 51 percent of public expenditures in Sweden and consists almost exclusively of services. Counties and municipalities have tried different approaches to meet the voters' demand for public services such as health care, education and elderly care. We capture the voters' opinions by using opinion surveys, such as the Swedish Election Studies.

The project was financed by a program grant from the Jan Wallander and Tom Hedelius Foundation.

Project manager: Henrik Jordahl

Participants: Mikael Elinder and Panu Poutvaara, University of Munich and the Ifo Instiute for Economic Reserach



"Promise voters to pad their wallets, and they will listen". IFN Newsletter, No 2, 2015. Link

Elinder, Mikael, Henrik Jordahl and Panu Poutvaara (2008). "Selfish and Prospective: Theory and Evidence of Pocketbook Voting." IFN Working Paper No 770. Published as "Promises, policies and pocketbook voting", European Economic Review, 75 (April), 177-194, 2015. Link 


Publications in Swedish

Elinder, Mikael, Henrik Jordahl and Panu Poutvaara (2009). "Själviska och framåtblickande väljare - Hur många röster köpte maxtaxan i barnomsorgen?" Ekonomisk Debatt, 37 (2), 6-12.


Public and Private Production of Publicly Financed Services

There is a trend moving towards private production of publicly financed services. This project studies the economic consequences of the choice between public and private production in terms of cost and quality.

International studies indicate that public procurement of transportations and technical activities may result in cost reductions of up to 30 per cent compared with public production. For "softer" activities the cost savings potential is considerably smaller and for health-care it is highly uncertain. According to the judgment of the Swedish Competition Authority, public services of about 250 billion SEK could be opened to competition between private producers. On the other hand, private production comes with a loss of control for the public principal with the risk of reduced service quality.

A starting-point is that all public services are not equally suited to contracting out. Differences between public and private production arise in the interplay of production mode, competition, and difficulties of contracting. The output of the project will include a survey paper on outsourcing of publicly financed services and an empirical study of Swedish municipalities.

Project manager: Henrik Jordahl

Participants: Fredrik Andersson (Lund University and IFN), Mikael Elinder (Uppsala University and IFN, and Erik Lindqvist (Stockholm School of Economics and IFN)

The project is funded by the Jan Wallander and Tom Hedelius Foundation.



Andresson, Fredrik and Henrik Jordahl (2011). "Outsourcing Public Services: Ownership, Competition, Quality and Contracting." IFN Working Paper No. 874.

Lindqvist, Erik (2010). "Planned Treatment and Outcomes in Residential Youth Care: Evidence from Sweden." IFN Working Paper No 834. Published in Children and Youth Services Review, 33 (1): 21-27, 2011.

Lindqvist, Erik (2008). "Privatization of Credence Goods: Theory and an Application to Residential Youth Care." IFN Working Paper No 750.

Lindqvist, Erik (2008). "Will Privatization Reduce Costs?" IFN Working Paper nr 736.


Publications in Swedish

Andersson, Fredrik and Henrik Jordahl (2011). "Hinder och drivkrafter för tjänsteinnovation i offentlig sektor: Outsourcing av offentligt finansierade tjänster." Working Paper 2011:24, Swedish Agency for Growth Policy Analysis.

Jordahl, Henrik (2011). "Vinst i välfärden: nationalekonomiska erfarenheter och perspektiv". In Anders Morin (ed), Vitsen med vinsten. Stockholm: Hjalmarson & Högberg Bokförlag, 78–93.

Lindqvist, Erik (2008). Privatisering av trovärdighetsvaror. IFN Nyhetsbrev, No 3 2008.

Jordahl, Henrik (2008). Privat produktion av offentligt finansierade tjänster. Ekonomisk Debatt, 36 (3), 46-58.


Public Service Contracting and Regional Development

Service contracting makes up a significant and increasing share of public expenditure in Swedish municipalities. Previous research has compared cost and quality of publicly financed services that are either produced in house or purchased from private companies. This project studied how this make or buy decision in Swedish municipalities varies with regional business structure and economic development. In particular the political explanations of public sector outsourcing was studied.

Project manager: Henrik Jordahl

Participant: Mikael Elinder

Time period: 2009-2011

The project was financed by a grant from the Swedish Competition Authority.



Elinder, Mikael and Henrik Jordahl (2011). "Political Preferences and Public Sector Outsourcing." IFN Working Paper No. 877. Published in European Journal of Political Economy, 30, 43-57, 2013. Link


Child Care and Long Run Labor Supply

The purpose of the project was to study the effects of subsidized childcare on long run labor supply and access to human capital.

Child care costs and accessibility can impact long run labor supply by affecting the size and quality of tomorrow’s labor force: size, through the birth rate, and quality, through a child’s development and human capital accumulation later in life. Understanding the determinants of fertility is central in today’s Europe, where problems arising from low fertility are of great concern. Moreover, in a knowledge-based society, it is important to uncover the preconditions for human capital accumulation, both for the growth potential of the economy, and to prevent disadvantaged children from falling behind.

Three topics were studied in the project:

1) Exploiting the natural experiment created by the implementation of the Swedish childcare cost reform of 2002, we study the causal effect of child care costs on fertility.

2) Using the same natural experiment as above, we study the impact of child care on child and parent health as measured by patient- and insurance register data.

3) Long run causal effects of childcare on education in adulthood are identified using regional variation in the timing of the Swedish 1970´s childcare expansion. 

The project was financed by a research grant from the Bank of Sweden Tercentenary Foundation.

Project manager: Anna Sjögren, IFN and IFAU

Participants: Helena Svaleryd, IFN, Eva Mörk, Uppsala University and IFAU, Mårten Palme, Stockholm University, Per Pettersson-Lidbom, Stockholm University, Jonathan Gruber, MIT, Maria Sáez-Martí, Zurich University

Time period: 2007-2011



Mörk, Eva, Anna Sjögren and Helena Svaleryd (2009), "Cheaper Child Care, More Children." IFN Working Paper No. 782. Published as "Childcare costs and the demand for children — evidence from a nationwide reform" in Journal of Population Economics, 26 (1), 33-65, 2013.


Publications in Swedish

Sjögren, Anna and Helena Svaleryd (2010). "Livets lotteri och vårt ansvar för de utsatta barnen." In SOU 2010:64, "Se de tidiga tecknen – forskare reflekterar över sju berättelser från förskola och skola".

Sjögren, Anna and Helena Svaleryd (2010). "Nitlott i barndomen ‒ familjebakgrund, hälsa, utbildning och socialbidragstagande bland unga vuxna." IFN Policy Paper No. 38.

Mörk, Eva, Anna Sjögren and Helena Svaleryd (2009). "Effekter av barnomsorgsavgifter på barnafödandet." Ekonomisk Debatt, 37 (2), 59-69.

Sjögren, Anna and Helena Svaleryd (2007). "Vad betyder barnomsorgen för barnafödandet?" IFN Newsletter No. 3, 2007.


COINVEST – Competitiveness, Innovation and Intangible Investment in Europe

The project was aimed at understanding the contributions of intangible investments to innovation, competitiveness, growth and productivity in Europe. Intangible investments are, with a few exceptions, either not measured, or treated as an intermediate input into production. This means that they are assumed to produce no durable assets for firms or economies. Some knowledge investment is counted as such in the key economic measures such as GDP (e.g. software). However, R&D and other knowledge investment (like investment in human capital via training, investment in reputation capital, investment in organisational capital etc) are all treated as day-to-day expenses, not investment. Thus, under current conventions, investment and GDP in an economy whose businesses spend €1 more on almost all knowledge investment is the same as an economy whose businesses turn up their air-conditioning. The researchers working on the project have collected data on a wide range of intangible investments and incorporated these into economic performance measures in order to improve our understanding of knowledge-driven economies and firms.

COINVEST was a collaborative project involving seven European research organizations (in Belgium, Bulgaria, France, Germany, Portugal, Sweden, and the UK). The project is supported by funding from the European Commission under its Seventh Framework Programme.

Project manager: Henrik Jordahl

Participant: Harald Edquist

Time period: 2008-2010

Project Web Pages



Edquist, Harald, 2011. "Intangible Investment and the Swedish Manufacturing and Service Sector Paradox." IFN Working Paper No. 863.

Edquist, Harald, 2009. "Can Investment in Intangibles Explain the Swedish Productivity Boom in the 1990s?" IFN Working Paper No. 809. Published in Review of Income and Wealth, 57 (4), 658–682, 2011.

Edquist, Harald, 2009. "How Much does Sweden Invest in Intangible Assets?" IFN Working Paper No. 785.


Producer Services

This project studied the importance of producer services for the manufacturing and the service sector, as well as for the entire Swedish economy. The focus was mainly on the outsourcing of producer services and its implications for productivity and labor market outcomes.

The project aimed at a closer study of the development of services connected to manufacturing, i.e. producer services and goods distribution, with a particular focus on the manufacturing companies' make or buy decisions regarding producer services. Another important topic was the effects of outsourcing and offshoring on producitivity and labor market outcomes. 

Project manager: Roger Svensson 

Time period: 2009-2010


Publications in Swedish

Svensson, Roger (2010). "Outsourcing av producenttjänster." Ekonomisk Debatt, 38 (6), 43-56.

Svensson, Roger (2010). "Effekter av utlandsflytt av producenttjänster." Ekonomiska Samfundets Tidskrift, årg. 63, nr 2, 107-114.

Svensson, Roger (2009). "Producenttjänster och outsourcing." IFN Policy Paper nr 26.


Platforms and Policy in the Telecommunications and High-Technology Industry

In two-sided markets, platforms connect and facilitate transactions between separate groups of agents that value each other’s presence. Platforms are common in the telecommunications and high-technology sectors. For example, in telecommunications, Internet service providers connect consumers and companies providing services over the internet. In the high-tech sector, software and hardware companies connect consumers and companies developing applications for the platform. Platforms in these markets must serve both groups of customers and design pricing and business strategies so as to get both sides onboard.

This research project aims to develop the theory of two-sided markets and use this theory to provide guidance for regulation and policy in the telecommunications and high-technology industry. The focus is two-fold.

1. To evaluate Net neutrality regulation on the Internet. An important feature of the Internet is that it can be characterized as a two-sided market. Since the inception of the Internet, information packets are transported on the Internet under “net neutrality,” a regime that does not distinguish in terms of price between bits or packets depending on the services that these bits and packets are used for. But recently, Internet broadband access providers in the Unites States have demanded rights to additional compensation for carrying valuable digital services. Granting them this would be a sharp departure from the net neutrality regime and has started an intensive debate about the underlying structure of the Internet and how communications companies operating the network should be regulated.

2. To develop theory and to evaluate policy relating to open and closed platforms. It is important to recognize that many software and hardware platforms in two-sided markets have a choice. They could allow external companies to interface with their product (and provide open platforms), or they could choose to close the interface (and provide closed platforms).

Project manager: Joacim Tåg

Time period: 2008

The project was part of a doctoral thesis at the Swedish School of Economics and Business Administration in Helsinki and was financed by the Ministry of Education in Finland and the Academy of Finland.



Economides, Nicholas and Joacim Tåg (2011). "Net Neutrality and Net Management Regulation: Quality of Service, Price Discrimination, and Exclusive Contracts". Forthcoming in Ian Brown, ed., Research Handbook on Governance of the Internet. Cheltenham: Edward Elgar.

Tåg, Joacim (2009). "Competing Platforms and Third Party Application Developers." Communication & Strategies, 74, 95-114.

Tåg, Joacim (2009). "Paying to Remove Advertisements." IFN Working Paper No. 789. Published in Information Economics and Policy, 21 (4), 245-252.

Tåg, Joacim (2008). Essays on Platforms: Business Strategies, Regulation and Policy in Telecommunications, Media and Technology Industries. PhD Thesis. Hanken School of Economics, Helsinki.

Tåg, Joacim (2008). "Efficiency and the provision of open platforms." IFN Working Paper No. 748.

Tåg, Joacim (2008). "Open versus closed platforms." IFN Working Paper No. 747.

Economides, Nicholas and Joacim Tåg (2008). "Network Neutrality on the Internet: A Two-Sided Market Analysis." IFN Working Paper No. 727. Published in Information Economics and Policy, 24 (2), 91-104, 2012.


Publications in Swedish

Tåg, Joacim (2009). "Policies och regleringar i telekommunikations-, media- och teknologiindustrierna". Ekonomiska Samfundets Tidskrift, 62 (2), 83-87. Link


Competition and Regulation in Electronic Communications

The purpose of this research project is to contribute to the understanding of the determinants of interconnection charges in electronic communications and the effect of competition and regulatory policies on market conduct.

Broadly speaking, the purpose of this research project is to analyze three issues. First, how does the mobile telecom market function, and what is the need for public intervention? Despite the many sources of market failure in telecommunications, the benefits of public intervention are uncertain. In fact, there are estimates that the 26 US states with price controls had prices that where 15 percent higher than the states without price controls, holding other economic factors equal. Second, how should one evaluate the effects of political intervention in the mobile telecom industry? Concerning the new European regulatory framework such an evaluation is already scheduled to be started in about two years time. Third, how should the national regulatory agencies carry out their duties, such as delineating markets, measuring market power and metering out appropriate remedies, under the new regulatory framework?

Project manager: Johan Stennek

Participant: Thomas Tangerås

Time period: 2005-2008.



Stennek, Johan and Thomas Tangerås (2007). "Better Regulation of Mobile Telecommunications." SIEPS European Policy Analysis No. 1, 2007.

Stennek, Johan and Thomas Tangerås (2006). "Competition vs. Regulation in Mobile Telecommunications." IFN Working Paper No. 685.


Globalization and Localization of Service Production

In November 2006, IFN hosted a conference on the globalization of service production and its impact on small open economies such as Sweden. Participants included Sten Tolgfors, Minister for Trade, and leading international scholars. 
The conference focused on the consequences of international trade and foreign direct investment in the production of services, including the increasing bundling of services with traditionally manufactured goods.
Five papers from the conference are published in a special issue of Journal of Industry, Competition and Trade (No. 3-4 2008).
Project Manager: Mattias Ganslandt
Time period: 2006


International cooperation

Visiting researchers

Collaborating with others is essential for IFN as a research institute. Our researchers co-author articles with colleagues from other institutes, and many also teach at various universities and colleges.

As part of our extensive program of guest researchers, leading international researchers visit the institute. The visitors present and pursue their research as well as interact and cooperate with researchers at IFN.

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