How Can Scandinavians Tax So Much?

American visitors to Scandinavian countries are often puzzled by what they observe: despite large income redistribution through distortionary taxes and transfers, these are very high-income countries. They rank among the highest in the world in terms of income per capita, as well as most other econo...

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Bibliographic Details
Published in:The Journal of economic perspectives 2014-10, Vol.28 (4), p.77-98
Main Author: Kleven, Henrik Jacobsen
Format: Article
Language:English
Subjects:
Child care
Consumption
Economic development
Economic growth
Economic models
Economic statistics
Economic theory
Enforcement
Estimated taxes
Evidence
Fiscal policy
GDP
Gross Domestic Product
Income redistribution
Income taxes
Information
Labor supply
Labour force
Marginal tax rate
Optimal taxation
Property taxes
Scandinavia
Self employment
Self report
Studies
Symposia: Tax Enforcement and Compliance
Tax audits
Tax evasion
Tax rates
Tax reform
Tax revenue
Tax revenues
Taxable income
Taxation economics
Third party
U.S.A
Use taxes
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Summary:American visitors to Scandinavian countries are often puzzled by what they observe: despite large income redistribution through distortionary taxes and transfers, these are very high-income countries. They rank among the highest in the world in terms of income per capita, as well as most other economic and social outcomes. The economic and social success of Scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare. How can Scandinavian countries raise large amounts of tax revenue for redistribution and social insurance while maintaining some of the strongest economic outcomes in the world? Combining micro and macro evidence, this paper identifies three policies that can help explain this apparent anomaly: the coverage of third-party information reporting (ensuring a low level of tax evasion), the broadness of tax bases (ensuring a low level of tax avoidance), and the strong subsidization of goods that are complementary to working (ensuring a high level of labor force participation). The paper also presents descriptive evidence on a variety of social and cultural indicators that may help in explaining the economic and social success of Scandinavia.
ISSN:0895-3309
1944-7965
DOI:10.1257/jep.28.4.77