I’ve repeatedly dealt with the argument over Denmark’s supposed socialism.
My core argument is that Denmark is very bad on fiscal policy, but very laissez-faire on other issues such as regulation. The net effect is that Danes have about the same amount of economic liberty as Americans.
The bottom line is that Denmark isn’t socialist. At least not if we use the technical definition. There’s plenty of bad policy, but no government ownership, no central planning, and no price controls.
Which is basically the message in this Prager University video by Otto Brøns-Petersen from the CEPOS think tank in Denmark.
This is a great video.
Basically everything you need to know about Danish economic policy.
- Other than fiscal policy, Denmark is very pro-free market.
- Denmark beats the United States for business freedom.
- Denmark has no minimum wage mandate.
- Denmark is reducing welfare handouts.
- Denmark is shifting to privatized social security.
- Denmark scores high for overall economic liberty.
- Denmark became rich before imposing a big welfare state.
- Adopting a welfare state caused Denmark’s economy to stagnate.
- Living standards in Denmark are significantly below U.S. levels.
To augment Otto’s video, let’s review a report from some of his CEPOS colleagues.
The entire report is worth reading, but I want to focus on one excerpt and some key visuals.
First, notice that Denmark and the United States have similar levels of economic freedom.
Since I’m a public finance economist, I was very interested in some observations in the report about fiscal policy.
This excerpt notes that Denmark has a much more onerous tax burden, and it points out that the value-added tax is the main reason for the gap.
…the tax burden (taxes to GDP) is the second-highest in the OECD and 70 percent higher than in the US (46 vs. 27 per cent of GDP). …The biggest difference between the Danish and the American tax systems is that consumption taxes
are much higher in Denmark. VAT is 25 per cent in Denmark while the average sales tax is 6 per cent in the US. …Including the effect of consumption taxes, the top marginal tax rate on labor income is 67 per cent in Denmark. For low and middle-income workers, it is 55 per cent. This is significantly higher than in the USA. It’s important to include consumption taxes when you calculate the effective marginal tax rate. High consumption taxes means that you can buy fewer goods for one extra working hour.
My first takeaway is that this explains why blocking the VAT is absolutely necessary for advocates of limited government in the United States.
And the second takeaway is that big government means big burdens on lower-income and middle-class taxpayers, which is what we seen in this next chart.
Last but not least, here are two charts comparing taxes and labor supply in the United States and Denmark.
In the tax chart, you can see that the two countries were very similar from the 1930s to the 1960s. But then the tax burden in Denmark got much worse (coinciding with the imposition of the VAT).
Now take a look at hours worked in both nations.
We were very similar back in 1970. But as the Danish tax burden grew, people responded by working less and less.
In other words, more evidence to support the core insight of supply-side economics. The more you tax of something, the less you get of it.
International Liberty 
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Interesting. I lived and worked in the UK in the mid-’90s and had an American colleague who worked in Denmark at the time. I visited her a couple times and toured the country. She was a devout Catholic and had a habit of service to the community. She was continually frustrated at the lack of public life in Denmark. She found virtually no opportunities to volunteer and no community organizations.
Her explanation was that, at the time, the government provided services for Danes that community-based groups in the U.S. provided for Americans. Individuals and communities had nothing to do in these areas. In fact, she told me that people found her strange for suggesting such activity.
She found the lack of public life dispiriting, though she enjoyed playing on a local soccer team and found Danes sociable and welcoming. But community service was nonexistent. I wonder if that’s still the case.
It should also be said that Trump is the one who is actually working to make the US more like Denmark in some ways:
* deregulation;
* cracking down on illegal immigration;
* a potential repeal of Roe vs Wade: abortion laws are significantly more restrictive in Europe.
One might add that somebody as corrupt as Hillary Clinton would never have got anywhere near the same percentage of votes in Denmark as in the US.
@chuck Wright… PCT of Tax Burden..
A pet peeve of mine is graphs that don’t have the axes adequately labeled. The vertical axis of the graph titled, “Historical evolution of the tax burden, Denmark and the US, 1920 – 1917” isn’t adequately labeled. The vertical axis is labeled with “pct.,” which I guess is percent, but a percent of what? Given the context, my guess is that the vertical axis is percent of GDP.