Social security contributions are levied on wages to fund specific programs and confer an entitlement to receive a (contingent) future social benefit. tax wedge of 28.4 percent and the OECD average of 34.6 percent. The tax wedges of the Scandinavian countries are now higher than the U.S.

In 2021, the tax wedge for a single worker with no children earning a nation’s average wage was 35.4 percent in Denmark, 36.0 percent in Norway, and 42.6 percent in Sweden. One way to analyze the level of taxation on wage income is to look at the so-called “ tax wedge,” which shows the difference between an employer’s cost of an employee and the employee’s net disposable income. This compares to 17.5 percent of GDP in individual taxes in the United States. In 2021, Denmark (24.7 percent), Norway (19.7 percent), and Sweden (21.3 percent) all raised a high amount of tax revenue as a percent of GDP from individual taxes, almost exclusively through personal income taxes and social security contributions. So how do Scandinavian countries raise their tax revenues? A first breakdown shows that consumption taxes and social security contributions-both taxes with a very broad base-raise much of the additional revenue needed to fund their large-scale public programs.

This compares to a ratio of 24.5 percent in the United States. In 2021, Denmark’s tax-to-GDP ratio was at 46.9 percent, Norway’s at 42.2 percent, and Sweden’s at 42.6 percent.

High levels of government spending naturally require high levels of taxation. Scandinavian countries are well known for their broad social safety net and their public funding of services such as universal health care, higher education, parental leave, and child and elderly care.

Flat tax system