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Why do Scandinavians Work?

Author

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  • Torben Andersen

Abstract

Recent 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 rate despite high tax rates and a generous social safety net. This either refutes the standard incentive argument or leave the Scandinavian countries as a puzzle. This paper argues that both the standard view and the Scandinavian experience can be reconciled when taking into account both the pecuniary and non-pecuniary incentives build into the social safety net. The social safety net in the Scandinavian countries is at the same time both generous and employment conditioned. 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. Such employment conditionalities make it possible to achieve distributional objectives without jeopardizing the incentive structure.

Suggested Citation

  • Torben Andersen, 2010. "Why do Scandinavians Work?," CESifo Working Paper Series 3068, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3068
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3068.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bachmann, Ronald & Beimann, Boris & Bredtmann, Julia & David, Peggy & Ehlert, Christoph & Kassenböhmer, Sonja & Schaffner, Sandra & Siemers, Lars, 2011. "Studies on flexicurity Lot 1: Study on various aspects of labour market performance using micro data from the European Union statistics on income and living conditions (EU-SILC). Contract No. VC/2010/," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72620, July.
    2. Kolm, Ann-Sofie & Tonin, Mirco, 2015. "Benefits conditional on work and the Nordic model," Journal of Public Economics, Elsevier, vol. 127(C), pages 115-126.

    More about this item

    Keywords

    tax incentives; labour supply; activation;

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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