Sweden-blogging

Lots of Sweden defenders in the comments here. Sweden is, obviously, a fine nation and its citizens enjoy an enviable standard of living by global standards. That said, as you'll see here Sweden has clearly begun to fall behind its Nordic brethren in GDP terms and the current vogue is to site Denmark as the premiere example of the Nordic social model.

Specifically what I had in mind with regard to Sweden is that in addition to consumption and income/payroll taxes, Sweden raised money from a wealth tax that tended to cause a fair number of Sweden's highest-earning individuals to leave the country. This, it seemed to me, really was a place where the dread Laffer Curve applied, and a policy more friendly to rich people would encourage rich Swedes to keep living in Sweden and paying Swedish taxes. I was Googling around to find some "data" to back me up on this, when I discovered that plans were announced last week to drop the wealth tax. The article notes that "Several European countries have dropped taxes on wealth in the last decade, including Denmark, the Netherlands and Finland" and those three are precisely the countries that have tended to displace Sweden recently as the example of choice as the paradise of social democracy. So, you see, even Sweden thinks Sweden went too far and should become more like Denmark.

Comments

Or maybe Sweden just has a center-right government now that has a policy a little closer to Mankiw's whether they "need to" or not.

Posted by otto | April 3, 2007 11:07 AM

Matthew, I can't help but send your readers to the film "Aprile" of Nanni Moretti, and the citation about a left politician on TV that every italian knows:
"D'alema, di qualcosa di sinistra ..."
Matthew: Say one thing from the left, just one thing, just one time.

Not taxing wealth means without any depression/war/revolution an exponential accumulation of the wealth at the top of the top quintile, and exponential inequality. But we can't do anything, could we, because people will leave the country for any tax shelter, and we couldn't sanction them or unite against tax shelter, could we?
Better to surrender now.
Or do you hope other will stand up and defend the estate tax?

Posted by Nanni | April 3, 2007 11:30 AM

> That said, as you'll see here Sweden has clearly
> begun to fall behind its Nordic brethren in GDP
> terms and the current vogue is to site Denmark
> as the premiere example of the Nordic social model.

Unstated assumption: that GDP (and therefore consumption) must continue to rise every year forever. Perhaps if one has a well-balanced society such as Sweden's, there comes a point where people have enough and they decided not to continue the American-style consumption treadmill?

Cranky

Posted by Cranky Observer | April 3, 2007 11:30 AM

Otto is right. The various tax cuts and policy shifts that are going on recently in Sweden are more a result of the center-right alliance that supplanted decades of almost un-interrupted Social Democratic rule. Still, Sweden has always had the most comprehensive coverage of all the Nordic states. Hell, prior to the Social Democrats losing power, in order to get more men to take advantage of the paternity leave option, there was a proposal to -increase- to 90% (from 80%) the amount of one's salary one received while on leave. The contemporary Social Democrats were definitely no heroes, and they began dismantling their own welfare system long before the Moderates took control (Privatization = Efficiency!) And the super wealthy -- Ingvar Kamprad and sports stars like Christian Olsson and Kajsa Bergkvist -- do tend to move abroad to avoid high taxes. But on the ground, from an outsider's perspective, most Swedes are still doing quite fine. Ask a Swede, though, and you'll probably get a different answer.

Posted by km | April 3, 2007 11:43 AM

The Netherlands does have a wealth tax. It's 1.2%. They have no capital gains tax. Basically they pretend you make 4% on your wealth every year, and tax 30% of that. So it's 1.2%

Posted by Chris | April 3, 2007 11:48 AM

Ah- the Laffer Curve... It's always shown as a wonderfully simple parabola (with, interestingly, the maximum set right in the middle at 50% taxes...), but in reality, it is probably more like the tangle described by the 'neo laffer curve':

http://en.wikipedia.org/wiki/Laffer_curve#The_Neo-Laffer_Curve

That is to say- there are probably a lot more reasons that Sweden does well with a higher tax rate than the US, and (for reasons pointed out by several other comments) comparing one country's tax system with another is problematic (what about corporate vs. personal taxes, for instance?).

Finally- why is GDP (or stock market valuation, or other corporate measures) the best way to look at a country's economic health? What about the quality of life for the majority of its citizens? While the US and Sweden have similar growth rates for their GDP, the difference in health care is significant! Even comparing Sweden and Denmark- what is the social cost of Denmark's lower taxes and higher GDP growth? Does Denmark provide as many or a high quality of services as Sweden for a lower cost? (I honestly don't know- but that is really the kind of question to look at- as well as why we are unable to do that here in the US!)

cheers-
Eric

Posted by Eric | April 3, 2007 11:50 AM

Mm, google some more, Matt, and you will find out that Denmark has a marginal tax rate at 67 % (Sweden max out at 58%). It's true that some of the super-rich has left Sweden. The founder of IKEA, Ingvar Kamprad, is probably the most well-known expat. However, since he left IKEA behind, doesn't consume that much (or so he tells us), and the wealth tax provides pittances anyway ( 5 billion SEK. less than a billion dollars, and around 0.5% of tax receipts in last year's budget) the consequences on the Swedish economy is probably neglible. As I pointed out in my post in the other thread, the superrich has been treated with kid's gloves for 15 years in Sweden (IK moved to Switzerland before that). The wealth tax has been kept for symbolic reasons, but, by all means, good riddance.

Denmark, by the way, is viewed as model due to the combination of lax labor market regulation, generous unemployment benefits, and active job-search government programs. The differences between the Finland, Netherlands, and Sweden is, in this context, miniscule so any of them will do as an example of social democratic paradise.

Posted by Dan Karreman | April 3, 2007 11:55 AM

With a disclaimer that I'm not an economist, my intuition tells me that a very high marginal rate on the highest bracket isn't going to be enough to make the Laffer Curve apply. Rather, I expect there'd need to be a very, very high overall rate of taxation for revenues to actually increase when taxes are lowered.

Of course the Laffer Curve is pseudo-economics and its proponents are cranks. What's true about it is, as you suggest, all economists agree that the basic idea is correct at some very high rate of taxation. But I'm unsure about the details. In this example, you mention the ultra-wealthy leaving the country. If we consider all possible ways in which tax revenue would be lost by excessive taxation, including things like emmigration, the black market, and not merely stifled economic activity, then that threshold will be lower.

So what was the overall rates of taxation in the Scandinavian countries during the height of social welfare states there? What are they now? I thought they'd declined substantially. Surely the wealth tax alone wasn't enough to offset that overall decrease. Or was it?

Posted by Keith M Ellis | April 3, 2007 11:55 AM

Even if GDP doesn't have to continue to rise forever, wouldn't it be better to have wealthy Swedes stay and pay SOME taxes, rather than leave the country and pay none?

On inequality, I'm not so sure that it matters as much when everyone has a decent standard of material living, adequate public schools, and practically free health care. As a matter of fact, having wealthy Swedes stay and pay taxes would seem to be a better way of preserving their generous welfare state.

I know people often self-report that what they really care about is how they're doing in relative terms, rather than in absolute terms. But I just don't have allot of faith that this opinion would hold in a generous welfare state with a good standard of living. Even if it did, I just doubt that it would be as important to people as it is in the U.S.

Obviously, if too many taxes are abolished or reduced, eventually the welfare state would be cut or eliminated. However if the taxes are such that wealthy people are leaving and paying no taxes, to the degree that tax revenue is damaged, then it seems reasonable to make the tax system friendlier to the rich.

If someone wants to question whether or not this is really happening, or assert that it's just a couple of globe-trotting tycoons moving around rather than a real trend of wealth migration, fine; maybe then the taxes should stay. But if Matthew is correct on the facts (that wealthy Swedes are leaving in numbers which should cause officials concern) then the remedy seems obvious: reduce or eliminate certain taxes.

Posted by Jay J. | April 3, 2007 12:03 PM

Keith,
If you were extremely unlucky, the marginal tax rate in Sweden could hit 106 % in the 70:ies (yes, you could actually end up paying more than you earned). There was a famous incident when Astrid Lindgren - author of the Pippi Longstocking books, among others - end up with a marginal tax rate above 100 %. Astrid, a life long social democrat, got mad, and wrote a stirring short story about the nasty government and stupid tax policies that got published in one of the biggest tabloids. Since this was an election year, the government acted swiftly (they lost anyway) and fixed her particular problem.

However, nobody, except Astrid, actually paid more than 100% marginal taxes. This was easily evaded with elemenatry tax planning, like owning a house and holding some debt. Anyway, crazy nominal marginal tax rates were fixed in 1988 in Sweden when sweeping reform put the marginal tax rate at 50%. We got an additional tax bracket in the mid 90:ies that added 5% , and if you choose the wrong place to live, you can hit 58% (again, easily evaded for most people with elementary tax planning, like saving for retirement).

Posted by Dan Karreman | April 3, 2007 12:14 PM

Matt,

You've cited a GDP per capita table that only lists one year's data: this doesn't tell us anything about Sweden's movement relative to its Nordic compatriots, nor when Sweden began to grow less quickly than the others. According to the OECD (see below) from 1996 to 2006, Norway grew at an average annual rate of 2.8%, Denmark at an average of 2.2%, Iceland at an average of 4.4%, and Sweden at 2.9%. On the other hand, back in the early 1990's Sweden suffered from the collapse of a large asset price bubble, and its economy contracted much more sharply than its peers. So that's not much of an argument that Sweden has overtaxed itself into slow growth.

Posted by Rich C | April 3, 2007 12:16 PM

Again fat boy's commentators demonstrate why the left has been excluded from economic policy decisions for the past three or so decades in the US(try and claim clinton you repulsive idiots. I dare you).

Posted by pimp hand | April 3, 2007 12:17 PM

OECD Data here: http://www.oecd.org/document/61/0,2340,en_2825_32066506_2483901_1_1_1_1,00.html

Click on Demand and Output

Posted by Rich C | April 3, 2007 12:17 PM

What Rich C said at 12:16pm.

Posted by Petey | April 3, 2007 12:23 PM

Matt, GDP per person gives a misleading picture of how most people live, because it ignores income inequality. If Bill Gates walks into a bar that has 99 flat-broke people present, then on average, everyone in that bar is worth tens of millions.

What counts is median income and median wealth. On that score, Sweden does very, very well.

Posted by Joe Buck | April 3, 2007 12:34 PM

I see others have already made most of the points I was going to raise, but to sum up,

1) Sweden hasn't "begun to fall behind", we had a three year huge crisis in the early 90s related to a banking crisis and an overheated economy, and have in fact managed to catch up since then.

2)Denmark has slightly higher taxes, and apparently clearly higher for millionaires.

3) The only way Denmark is slightly more economically rightwing than Sweden would be labor flexibility.

4) They have however been in a state of islamophobic hysteria for six years now, so how the fuck did they get to be a role model.

5) There was special provisions in the wealth tax for major shareholdings in large companies (or something like that) so that the big business dynasties didn't have to pay that much, even besides tax planning and loopholes that rich people everywhere use.

Posted by David Weman | April 3, 2007 2:15 PM

Also, the Netherlands, unlike Sweden and the Nordic countries, have had a pretty bad decade.

"Tended to replace..." I don't recognise that at all. I think you mean in the mind of Matt Yglesias, not liberal US opinion.

Posted by David Weman | April 3, 2007 2:20 PM

Well, I don't think this really applies to people in the U.S, who are not going to give up their citizenship. And if they do, we'll just take all their money!

Posted by Chad Okere | April 3, 2007 4:28 PM

Actually, Swedish monetary policy during early and mid 90:ies were basically stupidly self-flagellating and probably depressed GDP output by a couple of percentage points per year between 1992 and 1997. If we have had Greenspan monetary policies I'd wager GDP would be as much as 15 % higher today.

Oh well. There is a reason that the financial crisis in the early 90:ies coincided with a tanking economy, while the popping of the dot.com-bubble didn't even register in GDP growth, and the reason is the difference between sane and insane monetary policies.

The wealth tax, not so much.

Posted by Dan Karreman | April 3, 2007 4:36 PM

Cherries! Get your fresh picked cherries here!

Posted by LaFollette Progressive | April 3, 2007 4:36 PM

What about immigration?

I find it interesting that Denmark is now being placed on high as the new Scandinavian/Nordic social model economy when Denmark is a county that is notoriously criticised for it's xenophobia. The Danes have stricter rules for refugees and asylum seekers than the Swedes. The Danes have tougher immigration policies than the Swedes.

Sweden's social system is being strained by a huge influx of mostly poor immigrants that require massive amounts of state resources. While those on the right would be tempted to reinforce the notion that these are mostly Muslim immigrants, refugees and asylum seekers. Truth be told it doesn't really matter where they are from. The reality is that they are poor, under-educated, largely unemployed and recieve a lot of state assistance.

While I have no doubt that in time, this will benefit Sweden's society. The transition can be difficult. An interesting aside is that, if I can find it, I remember reading a study here in the U.S. that plots level of welfare benefits for a state against homogeneity of that states population. The results are unsurprising. Anyway, here is a nice NYT artice on Sweden, immigration and poverty. It is interesting reading.

http://www.nytimes.com/2006/02/05/magazine/05muslims.html?ex=1296795600&en=722dbb00a718b0f9&ei=5088&partner=rssnyt&emc=rss

Posted by Bubba | April 3, 2007 4:38 PM

Right, the welfare state and mass immigration are not compatible in the long run for obvious reasons, as outlined by the editor of Prospect. Mass immigration leads to Neal Stephenson-style libertarian dystopias.

One reason Denmark is doing better than Sweden is because it has had an immigration-restrictionist government for most of this decade. Similarly, Finland has never allowed in many immigrants at all.

Posted by Steve Sailer | April 3, 2007 5:12 PM

The good thing about the rambling NYT article is that it put the homogeneity canard to rest. Also, Sweden is not paradise on Earth. Now that this is firmly established, can I just note that Sweden have dealt with fairly large scale immigration since 1960, without any noticable negative effects on the social contract, the welfare systems, and the economy. As David pointed out above, we had three really bad years 1992-1994, due to a perfect storm of collapsing real estate markets, collapsing bank system, the gulf war recession, and a quixotic and almost comically inept defence of the exchange rate. Poor monetary policy prolonged the pain. The wealth tax probably convinced about 5 stuffy dot.com millionaires to emigrate but they are likely back now that their fortunes have evaporated, and good for them. If Matt wants to use Denmark as his favorite Nordic social democracy, hey, go on, make my day. As a Swede, I probably would feel a bit miffed, but I'm biased, and Denmark is a fine country, and Danes are my kind of people, albeit with an unfortunate crush on xenophobic politicians at the moment .

Posted by Dan Karreman | April 3, 2007 5:25 PM

Steve,
Is 47 years long run enough? And, no, Denmark is not doing better in any meaningful sense. If anything Sweden has been doing slightly better for the last ten years. But why am I arguing with you? You're not here for rational argument. Why are you here, Steve?

Posted by Dan Karreman | April 3, 2007 5:35 PM

I'm chiming in way to late here, but I'm more interesting in Matt's original point than in Sweden. I wonder if the observation points up some characterological differences between liberals and conservatives.

It has often seemed that libertarians, for example, make a fetish of arguing from first principles, frequently with an utter disregard for the practical consequences of their policy prescriptions. Much conservative thinking seems to have this flavor as well.

Is this a left-right thing, or maybe a consequence of the fact that mainstream liberal opinion these days is far more centrist than mainstream conservative opinion. Or am I just imagining the difference?

Posted by Adam | April 3, 2007 6:30 PM

Adam: For the libertarian thing, I think it's just a matter of libertarians not being a party with any real measure of political power. Theoretical arguments are much more what libertarians are about, while Democrats are arguing from the position of having a prayer of getting their policies enacted, and thus have to be more real-world oriented.

I think that hard-core marxist/communist types are just as theory-oriented as libertarians, for example, and similarly divorced from having politicians who support their views. I think that if libertarians (or marxists, or... gaian enviromentalist types, or whoever) took some actual power, you'd see a sharp turn away from theory and first principle.

I'm not sure that I see a difference between the theoretical/practical balance of Democratic- versus Republican-affiliated types.

Posted by Michael B Sullivan | April 3, 2007 7:21 PM

So is there any truth to the rumor that Matthew is going to drop matthewyglesias.com and take this blog over to his new favorite web site?

Posted by Alex | April 3, 2007 8:41 PM

Not taking into account relativities & inequality is a weakness of GDP measure but GDP, & GDP per capita is still an excellent measure of how well a country is performing economicly. And when it's applied to countries with low levels of inequality like Sweden, it's even better than for a country like the U.S.

Posted by DRR | April 3, 2007 10:20 PM

Not taking into account relativities & inequality is a weakness of GDP measure but GDP, & GDP per capita is still an excellent measure of how well a country is performing economicly.

If Iraqi companies were getting the reconstruction contracts, you would have seen a skyrocketing GDP post invasion. I won't say it's a bad measurement but if the idea is that a rising GDP means things are going great that's just wrong.

Posted by Ed Marshall | April 3, 2007 10:51 PM

May I suggest a blogosphere-wide self-denying ordinance on the pernicious practice of trying to discern which of two or more very similar nations are "doing better" based on statistical variations well within the standard deviation?

Honestly. Given the OECD numbers above, it's not at all obvious that Denmark is "doing better" in any meaningful way. Further, there's a pretty good distinction that can be drawn between fast-changing policy areas, such as monetary/exchange rate/intermacro policy, and slow-changing ones such as - say - childcare. I would be astonished if you could detect any variance attributable to those in GDP series less than 30 years long.

Posted by Alex | April 4, 2007 5:43 AM

If Iraqi companies were getting the reconstruction contracts, you would have seen a skyrocketing GDP post invasion.

Yes because their GDP would be growing at an exponential rate but that has nothing to do with the actual real GDP & GDP per capita of the countries involved. China & India may be faster than Belgium or the Netherlands, but are not nearly as wealthy as those two countries and that's reflected in the relative per capita GDP figures.

Posted by DRR | April 4, 2007 6:53 AM

If Iraqi companies had gotten the restructuring contracts, things in Iraq would certainly be a lot better than they are now. Imagine if we had actually given thousands of influential Iraqis a real stake in fighting for the political stability of their country instead of just handing out money to politically connected US businessmen...

To get slightly back on topic - I was just in Copenhagen - it certainly feels a lot less prosperous than Germany or France - it's surprisingly dirty (for Northern Europe), there's grafitti everywhere, and the newer architecture is ugly and shoddy looking (again compared to Germany or France). Also for a country with a "xenophobic" reputation, it seems to have no shortage of Turkish cab drivers, Chinese restaurants, halal food shops, etc. Seemed a lot more "multikulti" to me than your typical Italian or Spanish city. Germans were telling me that Denmark is also the new hot destination for German job-seekers - not so much for the benefits as for the overall quality of life, Danes are apparently much nicer bosses than Germans (who would have guessed?).

Posted by vanya | April 4, 2007 8:08 AM

Bubba:

"Sweden's social system is being strained by a huge influx of mostly poor immigrants that require massive amounts of state resources. While those on the right would be tempted to reinforce the notion that these are mostly Muslim immigrants, refugees and asylum seekers. Truth be told it doesn't really matter where they are from. The reality is that they are poor, under-educated, largely unemployed and recieve a lot of state assistance.

While I have no doubt that in time, this will benefit Sweden's society. The transition can be difficult."

Why do you have "no doubt" that this mass immigration of poor, under-educated job seekers will benefit Sweden in time? Are you extrapolating from, say, the contributions of third-generation Mexican Americans to the United States? Or is this just the triumph of hope over experience?

Posted by Fred | April 4, 2007 10:48 AM

Of course, the economic elite in this country got there by the sweat of their noble brows. For sure, they didn't purchase the political system (and the media). For sure, the astronomical growth of their wealth in the last generation is due to their hard work and innovation. As Cheyney said: "government had nothing to do with it."

American government and business is a criminal cabal. Confiscatory inheritance taxes and wealth taxes are only the beginning of what they deserve.

Wake up, Matt.

Posted by dcnataro | April 4, 2007 8:42 PM

Sorry, by "this country" I meant the US.

Posted by dcnataro | April 4, 2007 8:43 PM

dcnataro:

"American government and business is a criminal cabal. Confiscatory inheritance taxes and wealth taxes are only the beginning of what they deserve."

If the American government is part of a "criminal cabal", how do you hope to reign it in with an inheritance tax that is administered by that same government?

The silly leftist fantasy that the rich can be punished without punishing everyone else is just that -- a fantasy. You know what happens when you raise taxes to confiscatory levels? Rich businessmen who ordinarily would be investing in companies that create new products and hire workers invest instead in depreciation sinkholes they can use as tax shelters. Plenty of that was going on in the 70's and early 80's, and you know how great the working man did then. On the bright side, when unemployment and inflation were both approaching double digits and Americans were driving crappy cars, there was a lot less income inequality.

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