The Nordic Model - Embracing globalization and sharing risks

incentive effects of social security programmes, pension reforms
being an important case in point. The provision of public services
has been partly privatized or outsourced and it is increasingly being
exposed to the forces of competition. The timing and sequencing
differ somewhat between countries, but all Nordic countries have
in the past two decades undertaken significant reforms of their
public sectors and welfare policies.
As of now, the public sector in the Nordic countries is still
large by international comparison. It absorbs a share of total income
which is larger than in other countries, the tax burden is high,
and it extracts an amount of resources that is close to or exceeds
50 per cent of GDP (table 2.1, columns 1 and 2). Much of this
is social expenditure. However, social transfers are more heavily
taxed in the Nordic countries than elsewhere. Also, one should
take account of publicly mandated private expenditure or of social
benefits, which legislation forces employers to provide (Adema and
Ladaique (2005)). Making these adjustments, the Nordic countries
Table 2.1
Public sector and social spending
Tax burden Total Social Child care Average net Gross Progressivity
in 2006, expenditure expenditure and early unemployment replacement index of
% of GDP a in 2006, in 2003, education benefit rate in pensions g
% of GDP b % of GDP c in 2003, replacement pensions f
% of GDP d rate e
Denmark 49.0 51.1 23.8 1.6 78 83.6 59.3
Sweden 50.1 55.5 29.2 1.3 73 63.7 12.9
Finland 43.5 48.5 22.7 1.4 73 63.4 7.6
Germany 35.7 45.6 29.5 0.4 73 39.9 26.7
France 44.5 53.7 29.8 1.2 62 51.2 24.6
Austria 41.9 49.1 23.9 0.6 64 80.1 30.4
Belgium 44.8 49.0 26.0 0.8 62 40.7 58.8
Netherlands 39.5 46.7 20.6 0.5 73 81.7 0.0
Luxembourg 36.3 40.4 - 0.9 71 90.3 18.6
Italy 42.7 50.1 25.3 0.6 5 67.9 3.1
Spain 36.7 38.5 19.6 0.5 50 81.2 18.8
Greece 27.4 36.7 - 0.4 25 95.7 2.6
Portugal 35.4 46.1 23.2 0.8 63 54.3 18.8
United Kingdom 37.4 45.1 22.8 0.6 63 34.4 81.1
Ireland 31.7 34.0 15.6 0.2 70 38.2 100.0
a
The sum of taxes on income and wealth, capital taxes, social security contributions and indirect taxes, from OECD Revenue
Statistics 1965–2006.
b
OECD Economic Outlook (2007), General government total outlays, Annex Table 25.
c
Net publicly mandated social expenditure, see Adema & Ladaique (2005).
d
OECD (2007), Social Expenditure database 1980–2003.
e
Average net replacement rates in per cent over a period of 60 months of unemployment in 2004, one earner at average wage,
married couple, with social assistance. OECD (2007), Benefits and Wages, Paris (www.oecd.org/els/social/workincentives).
f
OECD (2007), Pensions at a Glance.
g
OECD (2007), Pensions at a Glance.
The Nordic model: myth or reality? · 41