Comment by AnthonyMouse
16 days ago
> Why is Denmark so high up for example, generally considered the country in the world with the highest tax pressure, and without any substantial natural resources.
It isn't the country with the highest tax pressure, e.g. Denmark government revenue is 36% of GDP, approximately equal to the UK, vs. 44% for France or 48% for Greece:
https://en.wikipedia.org/wiki/List_of_countries_by_governmen...
But the major source of variance in the numbers is that it not only matters what the tax rate is, it also matters how effectively you spend the money.
Suppose a government with the level of competence of Denmark would have an optimal tax rate of 20%, i.e. that's the point at which the low-hanging fruit is gone and additional spending starts to become net negative. That doesn't mean it's enormously net negative, when the government is more competent and efficient than average the loss could be small, so that Denmark at 36% might still only be slightly worse than breakeven compared to the lower tax rate.
Meanwhile a different government has the 20% tax rate, but three quarters of the money is lost to corruption or incompetence instead of funding the beneficial programs it should have been, so they could be worse off because high levels of corruption and waste can be as bad as high taxes.
The worst case is, of course, when you do both and have a high tax rate which goes to a government with a high level of corruption, which is what you see in e.g. Greece. But this is also what tends to happen in any place with a less efficient government that tries to solve it by raising taxes. The inefficiency that was the cause of the problem to begin with then gets more money to set on fire and that makes it even worse.
Maybe, but now you are pushing opinions, not facts.
I am pretty sure that you will not see a negative correlation between tax and GDP, just look at that list.
And maybe the politicians and tax officers in Denmark are people that got there because they enjoyed free university education instead of getting it paid by their parents?
Or maybe they were even re-educated factory workers?
> I am pretty sure that you will not see a negative correlation between tax and GDP, just look at that list.
The short-term correlation is between tax and GDP growth. Obviously if you set a lower tax rate in Greece it doesn't instantaneously become a rich country.
And the correlation exists at the level of taxes typically seen in first world countries. If you try to look at Zimbabwe or Ethiopia and ask why their low tax rates don't result in higher GDP, it's because they're not even providing a threshold level of basic government services. There is such a thing as too low, it's just not a thing typically observed in practice in Western countries. (To some extent the baseline is also an absolute dollar amount per capita rather than a tax rate; you could easily provide police and basic transportation infrastructure for 5% of US GDP but not 5% of Somali GDP.)
> And maybe the politicians and tax officers in Denmark are people that got there because they enjoyed free university education instead of getting it paid by their parents?
The typical causes of government inefficiency aren't the unavailability of qualified people, they're corruption and nepotism, or some other structural misfeature that exacerbates the principal-agent problem.
For example, the US constitutional structure envisioned a weak federal government with enumerated powers and constrained by a US Senate elected by the state legislatures with a personal incentive to inhibit federal overreach. Then the commerce clause was read so broadly as to de facto grant a general federal regulatory power and the 17th amendment caused Senators to be directly elected, leading to a massive expansion in federal power without otherwise changing the structure of the federal government. People elect their local dogcatcher and State Comptroller but the federal executive branch has only one elected official, the President of the United States.
The result is an excessive amount of regulatory capture and corruption, not because there are no qualified people available, but because there is a structural lack of accountability to the voters because the federal government wasn't originally intended to do most of what it currently does.
> because the federal government wasn't originally intended to do most of what it currently does.
Some times it feels like USA should become more like EU and EU should become more like USA in that respect.
Like the department of education, EU does not have that thing to begin with, each country takes care of that. So I am not very upset when they threaten to close that down.
While EU does not have a common defense which could be a good idea.
1 reply →