Nordic Countries Do Not Equal Big Government or High Corporate Taxes

August 31, 2021 Updated: August 31, 2021

Commentary

A lie is still a lie even if it’s often repeated. And claiming the Nordic countries are socialist economies with high taxes on wealth and businesses is a big lie.

Nordic countries are not socialist. They rank at the top in the Heritage Foundation’s Economic Freedom Index 2020 (Denmark 10, Finland 17, Sweden 21, Norway 28). They also rank at the top in the World Bank’s Ease of Doing Business Index 2020 (Denmark 4, Norway 9, Sweden 10, Finland 20), with simple and limited business regulation and a strong support for entrepreneurship.

They also rank at the highest levels in labor market flexibility—Denmark 7 and Norway 15—and have some of the most flexible labor markets according to the Employment Flexibility Index 2020 (pdf), while Finland and Sweden rank in the top 40 above Luxembourg or South Korea.

The public sector doesn’t dictate the growth pattern or the way in which the economy should be run; this is generated from the private sector, which finances more than 60 percent of research and development, and government applies private-sector best practices of efficiency and transparency in the management of public services. In addition, public officials don’t have a life-long position. The opposite of the political control that populists defend.

Nordic countries have carried out continued successful privatizations of state-owned sectors, from telecommunications to electricity generation and distribution. Even the postal service in Sweden was placed in a corporate structure.

In these countries, private education is encouraged through school vouchers, not forced state-run schools.

Government bureaucracy is extremely limited, and civil servants don’t have a lifetime job. In fact, the size of the public sector relative to GDP and compared to total public expenditure is very similar to the global and European average, according to the World Bank Bureaucracy Indicators.

Nordic countries also have a wide gap between rich and poor. They rank among the highest in wealth inequality according to the Credit Suisse Global Wealth Databook 2021, showing that in Sweden, for example, 74 percent of the wealth is owned by the top 10 percent and 34.9 percent by the top 1 percent, very similar levels to the United States. In Finland, the top 1 percent hold 28.5 percent of the total wealth, while the top 10 percent hold 59.8 percent.

Yes, Nordic countries do have higher taxes and high public spending, but it doesn’t entail bigger government, more bureaucracy, or more state control, as interventionists want. Furthermore, the reason why they have higher taxes is not because of elevated wedges for businesses and capital, but due to a very high VAT (value-added tax, a tax on sales).

All Nordic countries’ corporate tax rates are lower than or similar to the average European Union and United States’ rates in 2021, with Denmark and Norway at 22 percent, Finland at 20 percent, and Sweden at 20.6 percent. The U.S. corporate tax rate is 25.75 percent (federal and state combined).

Capital gains and dividend taxes are also generally in line with the rest of the European Union and United States.

Norway’s top personal tax rate of 38.2 percent is lower than the United States’ 43.7 percent. However, Scandinavian countries tend to impose the top personal income tax rates on upper and middle-class earners, not just high-income taxpayers.

Nordic “high taxes” come mostly from high VAT and social security taxes, not business or capital taxation, which is lower than in many developed economies. As the Tax Foundation article “Insights into the Tax Systems of Scandinavian Countries” by Elke Asen points out: “If the U.S. were to raise taxes in a way that mirrors Scandinavian countries, taxes—especially on the middle class—would increase through a new VAT and higher social security contributions and personal income taxes. Business and capital taxes would not necessarily need to be increased if policymakers were following the Scandinavian model.”

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Daniel Lacalle
Daniel Lacalle
Daniel Lacalle, Ph.D., is chief economist at hedge fund Tressis and author of “Freedom or Equality,” “Escape from the Central Bank Trap,” and “Life in the Financial Markets.”