Taxes and employment - is there a Scandinavia puzzle ?
AbstractRecent debates have suggested that taxation is very detrimental to labour force participation and employment. However, some countries - notably the Scandinavian - stand out as contradictions to this view since they have managed to sustain high labour force participation despite high tax rates and a generous social safety net.This paper considers the experience of European countries and Scandinavia compared to the US and asks whether Scandinavian countries are outliers. First, it is argued that the simple "tax argument" does not capture the European experience since labour force participation for some age groups is at the same or a higher level than the US. Second, it is argued that even though the social safety net is generous in Scandinavian countries, it is also very employment conditional. It is shown that these conditionalities can make high labour force participation consistent with a high marginal effective taxation of labour, and that it on the margin lowers the marginal costs of public funds. The design of the social safety net is therefore important in accounting for the Scandinavian experience.
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Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 359.
Length: 333 pages
Date of creation: Feb 2009
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Taxes and employment; is there a Scandinavia puzzle? taxation of labour; employment; labour force participation; social safety net; Andersen;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
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