| Summary: | Stefán Ólafsson here explains the characteristics of the bubble economy in Iceland, the magnitude of the financial collapse of 2008, and its consequences. The crisis was dramatic and deep but bottomed out early (2010). Since then good growth has prevailed. The governments of the crisis period applied various policy reactions that worked quite well, and included both macroeconomic stimulus measures and social protective efforts. Ólafsson describes what he terms Iceland’s redistribution strategy, which aimed to protect the more vulnerable households. These included increased transfers aimed at the lower income groups, job creation, activation and rehabilitation, debt relief, and changed taxation policy. Altogether these efforts succeeded in softening the worst crisis consequences and contributed to an equalization of income distribution. Financial hardship topped in 2010 and has come down since then, gradually and persistently. By 2017 the highest employment and income levels of the pre-crisis years had been regained.
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