Sweden No Longer Highest Taxed Country
Sweden is no longer the country in the world with the highest tax to GDP ratio. In 2007, the Swedish tax ratio was 47.8%, versus 48.4% in Denmark. This means that Denmark is now number one on that non-flattering category.
Both Sweden and Denmark's relative burden of government is somewhat exaggerated by two factors. Namely, the fact that Sweden and Denmark tax transfer payments (Taxing transfer payments instead of simply paying out net money have no real effect for either any individuals or the government, but raises the ratio of both taxation and spending relative to GDP) to a much higher extent than other countries, a factor which is responsible for roughly 3%: points of the relatively higher tax and spending ratios in Sweden and Denmark. Moreover, unlike in most other countries, both Sweden and Denmark have high budget surpluses. If you take these factors into account, France and probably also Belgium have even higher burden of government than Sweden and Denmark.
On the other hand, these tax ratio underestimate the absolute level of taxation in all countries (so this is not a factor in the relative position of Sweden and Denmark, at least not in any significant way) for two reasons. First of all, nowadays the estimated level of black market activities is included in GDP. This is appropriate when measuring the total level of economic activities, but it also means that the tax ratio will underestimate the level of taxation for people working the official economy. Secondly, this tax ratio is estimated relative to GDP, and not net national product or national income. Net national product/national income measures the true level of income as it excludes the cost of capital consumption, and is thus smaller than GDP. That means that the ratio of taxes to national income is much higher. That is the most important reason (the other is that capital income is lower taxed than labor income) why the tax ratio in Sweden for example has long been around 50%, even though the total tax wedge for middle income earners have been around 60%.
Both Sweden and Denmark's relative burden of government is somewhat exaggerated by two factors. Namely, the fact that Sweden and Denmark tax transfer payments (Taxing transfer payments instead of simply paying out net money have no real effect for either any individuals or the government, but raises the ratio of both taxation and spending relative to GDP) to a much higher extent than other countries, a factor which is responsible for roughly 3%: points of the relatively higher tax and spending ratios in Sweden and Denmark. Moreover, unlike in most other countries, both Sweden and Denmark have high budget surpluses. If you take these factors into account, France and probably also Belgium have even higher burden of government than Sweden and Denmark.
On the other hand, these tax ratio underestimate the absolute level of taxation in all countries (so this is not a factor in the relative position of Sweden and Denmark, at least not in any significant way) for two reasons. First of all, nowadays the estimated level of black market activities is included in GDP. This is appropriate when measuring the total level of economic activities, but it also means that the tax ratio will underestimate the level of taxation for people working the official economy. Secondly, this tax ratio is estimated relative to GDP, and not net national product or national income. Net national product/national income measures the true level of income as it excludes the cost of capital consumption, and is thus smaller than GDP. That means that the ratio of taxes to national income is much higher. That is the most important reason (the other is that capital income is lower taxed than labor income) why the tax ratio in Sweden for example has long been around 50%, even though the total tax wedge for middle income earners have been around 60%.
posted by stefankarlsson at 3:03 PM
1 Comments:
Very informative, thx! When talking about the swedish tax I usually tell people its 30% plus 20% plus 25%(income tax, employer's fee and sales tax) which works out to taking about 60% ofwhat you earn. The 47% surprised me at first, but it makes sense now, and I can still keep telling people about the 60% tax of sweden. :)
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