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Figure 10

Burden of Government Spending

60%

55%

50%

45%

40%

35%

30%

25%

20%

Denmark

Finland

Iceland

Norway

Sweden

United States

Source: Organization for Economic Cooperation and Development Fiscal Indicators, 2006.

Marginal Tax Rates

faster growth, but it does mean that there are

But just as all types of spending are not

some benefits to offset at least some of the

equal, neither are all forms of taxation.

costs associated with shifting resources from

Revenues raised by a low-rate consumption

the productive sector of the economy to gov-

tax impose only a modest burden on eco-

ernment.

nomic performance. Revenues collected as

Other types of spending, by contrast, are

the result of high tax rates on productive

more likely to weaken economic perfor-

behavior, by contrast, are likely to be associ-

mance, particularly consumption spending

and transfer outlays.31 Figure 11 shows that

ated with lower levels of work, saving, invest-

ment, and entrepreneurship.

governments in Nordic nations are much

A Swedish study

Key factors to examine include the top tax

more likely to spend money in these areas.

found that

rates on individual income and corporate

income, but double taxation of dividends

Aggregate Tax Burden

90 percent of the

and capital gains is also an important gauge

High levels of government spending, not

gap between the

of the tax code's bias against saving and

surprisingly, are associated with higher levels

hours worked by

investment, as are direct taxes on capital,

of taxation. Figure 12 shows total receipts

such as death taxes and wealth taxes. The

(including non-tax revenues) and tax rev-

Swedes and

existence of such taxes, particularly if tax

enues for the United States and the Nordic

Americans disap-

rates are non-trivial, reduces incentives to

nations. Total receipts is an important mea-

engage in wealth-creating activities.

sure since it is a rough approximation of the

peared once

Looking at taxes on personal income, the

amount of money being transferred from the

household

United States has a significant advantage over

productive sector to government, whereas tax

production was

most Nordic nations. As seen in Figure 13,

revenue is an important measure since it is a

Denmark, Sweden, and Finland all impose

rough approximation of the extent to which

added to the

much higher tax rates on personal income.

the fiscal system discourages work, saving,

equation.

Norway's top tax rate is significantly higher if

investment, and entrepreneurship.

12