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Kleven, Henrik Jacobsen. 2014. "How Can
Scandinavians Tax So Much?" Journal of Economic Perspectives,28
(4): 77-98.
Abstract
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.
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