Sunday, November 16, 2014

How Can Scandinavian Countries Tax So Much?

How can Scandinavian countries tax so much, and yet still have such high income per capita and other favorable economic and social outcomes?

Henrik Jacobsen Kleven explains, in a recent article from the peer-reviewed Journal of Economic Perspectives. Here are his three main conclusions:
First, the Scandinavian tax systems have very wide coverage of third-party information reporting and more generally, well developed information trails that ensure a low level of tax evasion. Second, broad tax bases in these countries further encourage low levels of tax avoidance and contribute to modest elasticities of taxable income with respect to the marginal tax rate. Third, the subsidization or public provision of goods that are complementary to working—including child care, elderly care, transportation, and education—encourages a high level of labor supply.
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