Finland : Selected Issues

Author/Editor:

International Monetary Fund. European Dept.

Publication Date:

January 16, 2020

Electronic Access:

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Summary:

This Selected Issues Paper on Finland studies importance of promoting labor supply through tax and benefit reform. The Finnish social welfare system has supported high income levels alongside low inequality. However, disincentives from high tax rates can weigh on labor supply and the state’s capacity to finance generous levels of spending and social protection. A comprehensive reform of the tax-benefit system could support the government’s objective of increasing employment. The equity-efficiency trade-off of the proposed reform scenarios improves social welfare when using Finland-specific preferences. The microsimulation analysis shows that, despite strong redistribution and high-income levels, Finland could improve its tax and benefit system. Even for revenue-neutral reforms, economic gains in terms of labor supply and earnings could be substantial. The reform proposals consider Finland’s strong preferences for equity, while seeking to correct potential inconsistencies in how the tax burden is distributed. Optimal tax and benefit reforms could reduce marginal tax rates for upper middle income earners to promote labor supply.

Series:

Country Report No. 20/6

Subject:

English

Publication Date:

January 16, 2020

ISBN/ISSN:

9781513526232/1934-7685

Stock No:

1FINEA2020002

Format:

Paper

Pages:

14

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