Why are the northerners so smart

Never Mind the Markets -

“They like to be different” - and above all have the more efficient system: The Scandinavians, for example in Sweden's capital Stockholm. Photo: Flickr.com/Michael Caven

In the Scandinavian countries, the tax rates are much higher than in the USA. However, tax evasion is not particularly pronounced. The system works.

How can this be explained?

If you ask Americans, you are often referred to cultural differences: "They like to be different." That may well be. A young immigration country certainly has different traditions than northern European countries, which have been quite homogeneous both ethnically and religiously for centuries.

But it's always better if you can Comparison with the tangible differences begins before resorting to culture. And here there are definitely noticeable differences, as a new paper shows (source).

  1. Scandinavians pay much more taxes on income known to third parties. These are mainly transactions that leave their mark, be it with a credit card company, a bank or another entity. Taxpayers are generally less inclined to evade taxes on such income because they know that the tax authorities can access them in case of doubt.
  2. The Scandinavian states have a much broader tax base than the US. They levy income taxes on a higher percentage of the population, and they have much higher consumption taxes than the United States. At the same time, the income tax progression is higher than in the US. A broader tax base reduces the likelihood of tax evasion.
  3. In Scandinavia, a significant part of the taxes collected is reimbursed to those who work. These are primarily subsidies for childcare and care for the elderly, commuter contributions and training vouchers. This means that the households that pay the most taxes get a substantial sum back. The net tax amount is significantly lower as a result.

The following table summarizes the three most important results:

  • Scandinavians pay more taxes than the Americans (Tax Revenue / GDP).
  • The Share of consumption taxes is higher in Scandinavia than in the USA (consumption taxes).
  • The Income tax progression is steeper in Scandinavia than in the USA (top marginal tax rate).
  • In Scandinavia pays a higher percentage of the population taxes income than in the USA (participation rate).

And the culture? It also seems to play a role. The following graphs show four interesting connections between cultural variables and the amount of tax revenue (tax take).

In short, it means the following. Scandinavians do indeed like to "be different", but the biggest difference to the US is that the state in Northern Europe has developed a much more efficient tax system than the US. Or to put it negatively: He is much smarter when it comes to pulling the money out of his citizens' pockets. He's getting a lot more, and people hardly argue against it.