3 thoughts on “Misconceptions about the Nordic economies”

  1. Posted 24/10/2016 at 19:56 | Permalink

    via indirect taxes, which are obviously more regressive than taxes on labour or on capital gains

    Indirect taxes aren’t regressive. They are flat. If you mean less progressive, then you should say that.

    Unless there is some class of goods that the rich buy and the poor don’t then everyone is paying the same rate. (I know savings aren’t taxed — except they are when they are spent, so they are taxed after all. Unless you think holding money in the bank and never using it is an option.)

    In NZ at least the VAT (GST) isn’t regressive, because land and rent are charged at zero. Since a poor person spends comparatively more of their money on rent than a richer one, the poor are slightly advantaged. If food is charged at a lower rate than say air fares and cars, then the VAT will actually be slightly progressive.

  2. Posted 25/10/2016 at 16:27 | Permalink

    Implicit tax rates are a very silly way of comparing things – percentages are only meaningful if you are comparing apples and apples, and not always then. The rich spend more and so pay more consumption taxes. The fact that the poor save very little and so pay tax on most of their spending whereas the rich save and pay no tax on that reduces the headline rate but produces a meaningless result because it doesn’t actually tell you what is going on.

    And as the first poster comments, if (like the UK) essentials (e.g. rent, food, children’s clothes) are free of tax, then the poor will be paying very little tax at all.

    A quick check of your claim about tax as a percentage of GDP would show you that the tax burden cannot possibly be mostly on the poor, as the poor produce very little GDP. That’s why there are poor.

  3. Posted 05/01/2017 at 09:27 | Permalink

    Hi Chester Draws & Tim Hammond,

    First of all, thanks for your insightful and respectful comments. Also, my apologies for not replying before, I didn’t even know that the IEA had published my article on the Nordic economies!

    Chester Draws,

    Strictly speaking, you’re totally right. That’s the reason why I use the expression “more regressive than” and I talk about “the regressiveness of the Swedish taxation system WHEN COMPARED TO the Spanish one”. Maybe I should have used the expression “less progressive than.” Nonetheless, bear in mind that, even though they pay the same tax rates, lower and middle classes spend a higher percentage of their income in consuming goods and services, so consumption taxes have a higher impact on them. Therefore, indirect taxes tend to be more regressive for this reason.

    Regarding your last comment, it’s true that in some countries like Spain, food and other goods are taxed at lower rates than, say, books or movies. However, this is not the case in Denmark where the VAT is 25% for all goods and services.

    Tim Hammond,

    Eurostat uses implicit tax rates to compare the tax systems in different countries because it gives you an accurate picture of how taxes are distributed. In other words, it tells you where taxes come from: consumption, labor or capital. For a more detailed explanation of how these implicit rates are calculated, see http://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2014/report.pdf , pp. 281-284.

    As I mentioned above, in Denmark, for instance, there is only one rate for all goods and services: 25%. In Sweden, it is true that there are three rates, but the reduced rates are applied to a few things and the standard rate is also 25%.

    I don’t say in my article that the tax burden is mostly on the poor but on “the lower and middle classes”. And this is so in all modern Welfare States, but it is more pronounced in the Nordics due to two factors: first, their reliance on indirect taxes to fund their Welfare States; second, the higher labor tax rates that lower classes pay in the Nordics. In fact, the 6 percentage-point difference between Spain and Sweden (see graph) comes essentially from the lower classes paying more taxes on labor.

    Thanks again for your respectful comments.

    Kind regards,

    Luis Pablo de la Horra

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