If you are thinking about comparing tax systems, Scandinavian countries are worth a closer look. Nordic tax systems are generally less bureaucratic, which is a good thing, especially when compared to US and Anglo-Saxon models. According to Kleven, on average, a medium-sized company in a Nordic country would spend less than one-fifth as much time on its tax payments as it would in a US-based country. The reason for this is that Nordic countries tend to have a more broad tax base and lower tax rates than Anglo-Saxon countries.

Tax policies in the Scandinavian countries encourage relatively low levels of tax evasion and high levels of economic efficiency. The Scandinavian countries also have a relatively high level of social capital. These factors reduce the scope for tax evasion and distortions of the labor market. This is good news for businesses and the taxpayers of these countries.

In a new study, economist Henrik Jacobsen Kleven has examined Scandinavian tax systems to find out why they are different from other countries. His book provides some useful insights. One surprising fact is that Scandinavian countries’ welfare policies do not tilt their tax system toward income distribution, as many would assume. Instead, most public spending in Scandinavia goes to subsidizing complementary goods that working-age individuals need to function well. This means that the working-age population can concentrate on their career instead of being distracted by welfare programs.

As a result, most Scandinavian countries have broad tax bases that yield significant revenue. These taxes are levied on consumption and middle-income earners. Business taxes are less reliable. Moreover, Scandinavian countries do not place a high tax burden on capital income. In fact, taxation of labour and consumption is much higher in Scandinavia than in the United States.

The highest tax rates in Scandinavian countries are very high, and the highest personal income tax rates are over 1.2 times the average income. In comparison, the highest personal income tax rate in the US is 43.7 percent. This is a huge difference and makes Scandinavian countries stand out. However, these differences are not the most striking feature of Scandinavian tax systems.

The Scandinavian countries’ tax systems are based on the principle of legality. They do not use case law-based tax doctrines, which makes their tax laws more predictable. Instead, they rely on a more formalistic approach and apply stricter standards. This approach strengthens legal certainty and predictability.

Scandinavian countries have low corporate taxes. The highest tax rate in Sweden is only about 18 percent higher than in the United States, while Norway’s top marginal rate is around 40 percent. Compared to this, the Scandinavian tax rates are much more competitive than the U.S. corporate income tax rate. But in the United States, the highest tax rate kicks in at 8.5 times the average income.

Denmark, Norway, and Sweden have statutory anti-avoidance instruments. In the past, these countries relied on case law-based anti-avoidance doctrines. But in recent years, they have codified GAARs (general anti-avoidance rules). This is a departure from their traditional legal tradition.