Almost Nothing Rotten in Denmark

by Will Wilkinson on August 23, 2007

My colleague Dan Mitchell complains that Denmark’s new tax cuts aren’t deep enough. That’s his job. And he’s probably right. But, I wonder: Does Denmark’s tax policy imperil its citizens’ well-being? I imagine there are a good number of Danes upset about their astronomically high taxes, but they also must be pretty popular. Also, if you don’t mind boring, or blondes, Denmark appears to be one of the best place for human beings to live in the history of world. Look at these various rankings:

GDP per capita: 7th
Human Development Index: 16th
Economic freedom: 13th
Self-reported life satisfaction: 1st
Ease of doing business: 7th

Denmark also gets top grades (not a ranking) from Freedom House for political rights and civil liberties.

Now, I think Denmark should cut their taxes. Their GDP growth is lower than the OECD average, despite their being relatively aggressive free-traders. I doubt they’ll stay so high in all these rankings if they begin to fall behind their neighbors over time, GDP-wise.

But these high taxes and slowish growth surely have something to do with this:

Welfare state and social spending as % of GDP: 1st

which leads to:

Low income inequality: 1st

And the Danes seem to like it that way. From almost all indications, the Danish model of a free-market welfare state is a stunning success. They no doubt need to fiddle with their tax rates to keep it sustainable. But it’s certainly hard to blame them if they don’t think the cuts need to be as aggressive as Dan or I think they should be.

Also, to be clear, I don’t want the U.S. to look more like Denmark in terms of tax and social policy. I also don’t think Denmark should want the U.S. to look like Denmark. The continued viability of countries like Denmark depends on the success of countries like the U.S. But, unless one insists on being ax-grindingly ideological, you’ve got to admit that both Denmark and U.S. are huge successes in terms of human flourishing. They’ll never have our levels of innovation, we’ll never have their Gini coefficient, and you know what? That’s OK.

Also, did I say that Denmark is boring?

  • Bill
    Even an extreme liberal like myself, in favor of progressive taxation, less inequality, and strong regulation of markets, finds it weird here in Denmark. The levels of all of these, in Denmark, go beyond what even I would want to see in the U.S.. It makes life pretty nice here, though. The "ghettos" of Denmark, where immigrants are concentrated, are some pretty nice housing complexes - quite up to the level of the average middle-income apartment complexes in the U.S. The lack of crime is amazing, though drunken vandalism does leave a lot of broken bottles about.
  • Having lived in California all my life ("Cali baby!") and also having visited Denmark, I can say that although Danish women are attractive in that yuppie-ish, "Ready Made" magazine, cute and elfin white girl kind of way, they are no match for the diversity of the Golden State's females. Yes, boring in comparison. Vs. the USA as a whole? I'd still say so, given the astonishing array of personality types - and body types (thick for the so inclined) - and lifestyles you'll encounter. In Denmark it's small apartments and bicycles for everyone.

    But yea I'd rather live there, at least for a long while. Hey, I like electronic music and the internet alot.
  • Will- beautiful Danish women sunbathing topless at the beaches at Aarhus is hardly boring!
  • Will Wilkinson
  • TGGP
    Will, what do you think of this?
  • Will Wilkinson
    Kevin,

    The general point about equality and happiness is that it has no independent effect. But, not surprisingly, if you happen to care a lot about equality, you'll find low inequality congenial. It turns out that Americans don't care a lot about inequality, and our relatively high levels have no effect either way on average happiness. The Danes, I bet, are generally really proud of being an egalitarian society, and so low inequality there probably has on average a positive effect.

    This point seems to really aggravate egalitarians, since it's basically saying that if you like chocolate, more chocolate will make you happier, and if you don't it won't. Egalitarians would like us to care about equality because it has an independendt effect on well-being, rather than its having an effect (or not) just because we happen to care about it (or don't).
  • While I like this post a lot, I'm slightly dissapointed that Will does not look for any innovation ranking, yet claims that Denmark is lacking far behind.

    Denmark is characterised by many small companies with low R&D. how ever - there are many forms of innovation and Denmark is leading on process, product and organization.
    R&D is high on biotech, and in the food industry.

    Denmark was just ranked nr. 1 in ICT http://www.weforum.org/en/media/Latest%20Press%...

    ... and manages well on other criteria: http://www.worldbusinesslive.com/article/625442...

    If scaling (accounting for Denmark being a small country) is taken into consideration, DK is by this paper ranked as no. 4 in Europe http://www.google.dk/url?sa=t&ct=res&cd...

    And while DK may be boring on some aspects.. well... Some parts of the states are not all that jazz ;-)
  • So does Denmark's lowest in the world inequality have something to do with their overall happiness? I thought you said stuff like that didn't really affect happiness.
  • Lau
    Jed, I'm not saying it's better to eat out. You can afford it more easily in the US. I think the reason people out less in Denmark is because of taxes.

    -It is so expensive(partly due to taxes).
    -People work less because of the high marginal taxes.
    -People don't have a lot of money left after taxes.

    And I don't want the government to tax people to make them healthy - I don't think that would work anyway.

    "The continued viability of countries like Denmark depends on the success of countries like the U.S."

    Even though the private sector in Denmark is hampered by taxes, there is still some production going on, it's just not as much as it could be.

    So for instance the Danish company Maersk is the largest container shipping company in the world. They also produce oil. Denmark as a country is a net exporter of oil. AFAIK the US is a net importer - so when it comes to shipping or oil you could say that the US "depends on the success of countries like Denmark". And that's not a bad thing - it's the case for virtually everyone. We all depend on trade.
  • Anonymous
    I'm a Dane. Most people I know are happy, healthy, pretty and friendly.

    However, since I am very smart, educated and ambitious I should think carefully about what country I bless with my effort.

    Should I pay the very high tax and lessen the probability of ever earning economic independence, in return for an easy life, or, should I move to a country that is more friendly towards my kind?

    The thing is, there is so much more left after tax, that it will be easy to afford an apartment or house in the foreign country and in Denmark, travel a lot, have a maid and still meet my friends now and then.

    Denmark, you will never give me autonomy.
  • I don't take issue with what you're saying because (a) I don't know anything about Denmark, and (b) I'm a piss poor economist.

    I will, however, take issue with Lau's assertion that going out to eat more often is somehow better than people eating at home. It's not. It's one of the reasons Americans are so fat, and it's leading to the loss of our cultural heritage—i.e. Americans no longer know how to cook. But I'm just one person who cares a lot about food, just as Lau is a Dane who wants lower taxes—these are anecdotes.

    I'm digressing.

    I have a question for Will:

    The continued viability of countries like Denmark depends on the success of countries like the U.S.


    Why is this? Or why do you think this is? It's not apparent to me at all.
  • Marshall
    I am tired of reading statistics about Denmark which in no way capture how it feels to live in Denmark.

    I have four questions which I beg you to answer:

    1) How many people live in Denmark?

    2) Where exactly is Denmark?

    3) Is the capital of Denmark on an island?

    4) What's the weather like in Denmark?

    If you don't know the answers, then you can't use the statistics.
  • Lau
    The majority of the voters live of off income from the taxes. The high taxes are popular among those people. On the other hand the taxes are not popular among the minority working in the private sector, who pay a 63% marginal tax on income above ~$59k USD.

    "And the Danes seem to like it that way." Don't lump everyone together please. The people living off of the back of the privately employed tax payers might like it that way, yes.

    The sales tax is 25%. On cars there is an additional 160%-180% tax. There are also additional taxes on tea, coffee, candy, soda, alcohol, energy, some kinds of insurances and more.

    With these taxes it is expensive to do things like eating out. It's less common than in the US from my experience.

    GDP per capita might be high, but the state takes all the money away from you. And the GDP number is misleading since it is assumed that state/public "production" value is equal to the cost.

    You can't compare "Self-reported life satisfaction" across cultures. And it just says that people say that they are satisfied, not that they are. Probably because they think that they should be.

    As you mention, growth is stagnating. Forget Gini coefficients. People are more equally poor - yay. I want to leave Denmark soon.
  • Matthew
    The 63,5% highest rate of income tax, which in 2009 was reduced down to around 58% I believe, is not marginal. It is an average rate. That is, 58 cents in every dollar earned goes out in tax,
    So mortgage interest is tax deductible -- not an especially attractive compensation.
  • Maybe I'm just ax-grindingly ideological, but it seems to me that some liberalizations are important to do regardless of aggregate satisfaction with the status quo.

    I don't like it when groups wrong individuals, even if it leads to generally happy mobs.
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