Finland: Selected Issues

International Monetary Fund

No 2020/006, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper investigates impact of promoting labor supply through tax and benefit reform in Finland. A comprehensive reform of the tax-benefit system could support the government’s objective of increasing employment. The equity-efficiency trade-off of the proposed reform scenarios improves social welfare when using Finland-specific preferences. The Finnish tax and benefit system has served the country well, having supported high income levels alongside low inequality. The model is characterized by strong institutions, high taxes and public service provision, a highly skilled labor force and a generous social safety net. The microsimulation analysis shows that, despite strong redistribution and high-income levels, Finland could improve its tax and benefit system. Even for revenue-neutral reforms, economic gains in terms of labor supply and earnings could be substantial. The reform proposals consider Finland’s strong preferences for equity, while seeking to correct potential inconsistencies in how the tax burden is distributed.

Keywords: ISCR; CR; tax rate; economic gain; rate; supply; work benefit; participation tax rate decomposition; income level; earnings increase; rate cut; tax rates comparison; employment gain; household earnings; earnings distribution; Income; Wages; Marginal effective tax rate; Labor supply; Income inequality (search for similar items in EconPapers)
Pages: 14
Date: 2020-01-16
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