Highly Effective & Based on Strong Cultures Scandinavian Tax Programs

A major conclusion in the article relates to optimal income taxation that is pursued by Scandinavian countries along the commitment towards income redistribution. Use of the optimal policy is one way that the redistribution of income is achieved with reliance on third parties for effective targeting of potential tax sources. The combination of small subsidies and tax-transfer distortions contribute towards the optimal policy’s efficiency while justifying the high taxes in Scandinavian countries.

The collective responsibility of the people working hard and willing to benefit from a just system provides ground for the tax distortions where collective tax rates on the individual can reach 60-70 percent. Nontax incentives help sustain the commitment to productivity which is complement of the government being able to lower prices of goods and services.

The use of optimal income taxation is informed by the need to plug a major social welfare function with maximization of total individual utilities. Provision of public goods is prioritized as a function of government alongside the redistribution of income to ensure the underprivileged have a relatively equal footing at accessing basic amenities. A fundamental part of the high tax burden is a lack of distortion on individual behavior once the optimal policy is applied indicating the need to make the decision for higher taxes count through efficient provision of public services.

Furthermore, the distortionary taxes are justified by a lack of perfect information sources that could allow governments have firsthand understanding of individuals’ wealth. The ability to limit escalation in individual behaviors considering the high taxes relates to provision of incentives that are complementary to work where expenditure in child care, elder care, transportation, health, and education are highly subsidized (Kleven 90).

Justification for optimal income taxation is also advanced through the outlier property in most of the Scandinavian countries where expenditure on participation subsidies have a multiplier effect on employment as workers aspire for greater productivity. For instance, the optimal tax theory reinforces the argument on how optimality of subsidizing child care is complementary to labor supply by having a lowering effect on total effective distortion.

Arguments in support of incentives instill a sense of low to negative tax rates on goods that are expected to incentivize labor supply such as child care, transportation, and education among others. However, optimal taxation of commodities needs to be pursued alongside a tax regime that pushes for different taxation approaches guided by income earning abilities and individual endowments (Brunner, Eckerstorfer and Pech 116).

Beyond the tax on labor income, the Scandinavian countries have pushed for proportional taxes targeting wealth and other commodities that can reinforce the welfare-maximizing system that draws insight from optimal taxation. The low participation tax rates or Earned Income Tax Credit (EITC) are observed in the extensive-margin optimal tax model where policy instruments such as child care an elder care are included. The model provides a clear indication on the positive correlation between childcare demand and working which escalates to the ability to pursue effective means of income redistribution (Kleven 92).

Scandinavian countries have sought to pick a parameter such as child care from where an optimal expenditure cap is set towards the subsidy to allow programs such as the EITC attain their desirable outcome. Furthermore, measures against tax evasion build the needed trust that builds the cultural psyche of the Scandinavian countries. Use information trails, broad tax bases, and complements to work define the sociocultural environment under which high taxes have been successful.

A disagreeable conclusion from the research on Scandinavian taxation is the way efficiency of the tax system is dependent on the revenue expenditures. For instance, governments are driven by their expenditures to adjust their taxes. However, expenditure cannot be the only sole reason for tax distortions since the citizens might be too laden with tax burden. The Scandinavian countries tend to spend large amounts of money on transfer programs to bolster the welfare of their citizens (Kleven 87). A similar approach cannot be extrapolated to other countries that do not invest in the development of citizen programs. In fact, the excessive tax burden would frustrate citizens.

Government commitment towards the citizens’ welfare is essential in determining the basis of resource allocation. However, transfer programs cannot be the only type of investment for the government. In fact, resource allocation should be balanced between welfare and developmental programs in order for the government to regenerate the funds used. The investments in transfer programs are perceived as subsidies that are used to improve the health of labor (Gillitzer, Kleven, and Slemrod 242).

Moreover, they tend to mask the distortionary aspect of taxes. Nevertheless, governments are encouraged to find other means of revenues rather than taxation. Taxes tend to demoralize labor and affect productivity negatively. Countries where excessive taxes are applied tend to have high incidences of tax evasion. Furthermore, investments in tax programs tend to affect the aggregate labor supply. When countries insist on transfer programs for the unemployed and senile citizens, they build new comfort zones for the citizens. The citizens might exhibit issues of redundancy as they do not see the need to solicit jobs.

The Scandinavian tax programs are highly effective based on strong cultures and incentives to drive labor force participation. The culture built in such countries is that work should be independent of the gains since the government is bound to take care of most expenses. The government also makes deliberate effort to lower the prices of goods and services in the consumer market. Therefore, the taxation system on labor participation and forces in the consumer market are aligned. The main problem with such a system is that the tax system is influenced by social motivations. Tax morale becomes difficult to establish when dealing with citizens of diverse origins and characteristics (Kleven 93).

According to Brunner, Eckerstorfer, and Pech (108) argue that optimal taxation models should be developed while considering the variations in wealth across the country. Since taxes in the labor market might cause redundancies and low productivity, it is necessary to avoid over taxation in the sector. The important element is seeking balance by tapping into the commodity market to bring an aspect of equality. Again, the authors emphasize on the need to use optimal taxation of inheritances with a redistributive motive rather than punitive measure against the rich (Landier and Plantin 1187).

In this case, taxation cannot be used solely to generate funds for an economy. Governments also need to show commitment towards capital investments that will improve the national earning capacity. Overall, tax evasion can be avoided when the government seems fair in its application of tax and the motives are justified across the nation.

Works Cited:

1. Brunner, Johann, et al. "Optimal Taxes on Wealth and Consumption in the Presence of Tax Evasion." Journal of Economics, vol. 110, no. 2, Oct. 2013, pp. 107-124. EBSCOhost, doi:10.1007/s00712-012-0314-4.
2. Gillitzer, Christian, et al. "A Characteristics Approach to Optimal Taxation: Line Drawing and Tax-Driven Product Innovation." Scandinavian Journal of Economics, vol. 119, no. 2, Apr. 2017, pp. 240-267. EBSCOhost, doi:10.1111/sjoe.12174.
3. Kleven, Henrik Jacobsen. "How Can Scandinavians Tax so Much?†." Journal of Economic Perspectives, vol. 28, no. 4, Fall2014, pp. 77-98. EBSCOhost, doi:10.1257/jep.28.4.77.
4. Landier, Augustin and Guillaume Plantin. "Taxing the Rich." Review of Economic Studies, vol. 84, no. 3, July 2017, pp. 1186-1209. EBSCOhost, doi:10.1093/restud/rdw033.