Nordic model

Allo,

No, I don't mean beautiful Scandinavian models... I mean social states. At the last chatting session I mentioned how Nordic countries have their cake and do eat it: lots of spending (or investment as I like to frame it) on social programs, combined with strong economic growth and competitiveness. How? Well I wasn't exactly sure so I interviewed Prof. Stephen Gordon of Laval University who blogs about Canadian economics and the Nordic model here.

His simple graphs show this: These countries spend a lot more of their relative GDP on social programs. They do this by having much higher income taxes (around 60% compared to around 45% here) and much higher consumption taxes (around 25%), which is also a bonus from an environmental standpoint. People like our current government believe (or maybe they don't but they want to benefit from perpetrating the belief) that people will work more if they are taxed less on their salary, or that they will make great use of a tax break. But according to the professor, there's no proof of this. Rather, people and work are not an infinite resource you can keep stretching. At one point, they decide they've worked enough and want to enjoy life. As for the little tax credits, they are basically little gifts and aren't needed by most people. However, tax credits are very important for lower income people, especially when it comes to the consumption taxes.

The flip side in these countries is that their corporate taxes are way lower than ours, so companies can better compete. This of course flies in the face of a popular belief that we need to tax those big evil corporations who are making billions. Low corporate taxes mean they can invest more, not charge as much for their products, and pay better wages, and that they don't run off to other countries. And corporations don't have to provide as many benefits because they're provided by the state, for everyone.

Any thoughts on this?

The interview airs Monday between 8 and 9 and will be podcasted.