Taxes and employment - is there a Scandinavia puzzle ?

Torben M. Andersen

No 359, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

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 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.

Keywords: Taxes and employment; is there a Scandinavia puzzle? taxation of labour; employment; labour force participation; social safety net; Andersen (search for similar items in EconPapers)
JEL-codes: H20 J22 J23 J60 (search for similar items in EconPapers)
Pages: 333 pages
Date: 2009-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0359

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