Denmark

Denmark is a highly regarded country for good reasons. Danes are healthy, wealthy, and happy. And they’ve been so for quite a long time. Foreign admirers—both left and right—often point to Denmark as a policy model, but few seem to appreciate the country’s unusual combination of free enterprise and welfare state. In this short book, we examine the Danish economic model, including its origins, and draw some important lessons from the experience, such as how economic freedom underlies the high standards of living Danes enjoy, how its welfare state is financed with very high taxes on middle-income workers, and how Denmark’s experiment with unsustainably large government did not go well and had to be (largely) undone.

Denmark

Podcast

Join economist Rosemarie Fike in conversation with leading academics, thinkers and authors about the realities of socialism as it was imposed on millions of people throughout the 20th century.

Realities of Socialism: What does income support really look like in Denmark?

Matthew D. Mitchell, PhD, Senior Fellow in the Centre for Economic Freedom at the Fraser Institute and co-author of The Road to Socialism and Back, joins host Rosemarie Fike to discuss Denmark’s economic model, and more specifically the country’s approach to income support and when and how exactly the government chooses to intervene.

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Videos

History of Prosperity

History of Prosperity

From the mid-1880s to 1970, Denmark embraced open competition, free trade, minimal regulations, low taxes and limited government. As a result, Danes enjoyed one of the highest per capital incomes in Europe by the early part of the 20th century.
History of Small Government

History of Small Government

Despite misperceptions, before its socialist experiment—starting in 1970—Denmark had a comparatively small government as a share of the economy.
The Socialist Experiment

The Socialist Experiment

From 1970 to 1995, Denmark substantially increased government spending as a share of the economy compared to other western countries, but then turned coarse and began to reduce spending beginning in the mid-1990s.
High Taxes on the Middle Class

High Taxes on the Middle Class

Denmark’s Welfare State is not paid for by high income earners, but rather by middle-class Danes who pay one of the highest sales taxes among all wealthy nations at 25%.
High Personal Income Tax Rates

High Personal Income Tax Rates

In addition to a very high sales tax, middle-income Danes also pay for their welfare state with high personal income tax rates that apply at comparatively low levels of income.
Encouraging the Private Sector

Encouraging the Private Sector

Denmark encourages private sector business investment with a competitive corporate tax rate of 13.8%, which is significantly lower than Australia (28.1 per cent), the United Kingdom (26.5%), the United States (22.6%) and Canada (15.7%).
Restraining Deficits and Debt

Restraining Deficits and Debt

Following the country’s socialist experiment, Danish voters now strongly support fiscal rules that impose limits on government borrowing. Between 1995 and 2019, Denmark ran 19 surpluses, and only six deficits.
Economic Freedom

Economic Freedom

Economic Freedom measures the degree to which a country relies on individuals, families, entrepreneurs, business-owners, and workers to make economic decisions rather than politicians, bureaucrats and regulators.

Infographics

  • All
  • Government
  • Spending
  • Economy
  • Taxes
Denmark's history of prosperity

Denmark's history of prosperity

By 1914, Denmark was one of the richest countries in Europe

Danish incomes

Danish incomes

By 1958, Danish incomes were higher and growing faster than British incomes

Denmark's prosperity

Denmark's prosperity

By 1970, Denmark was one of the richest countries in the world

Denmark's government

Denmark's government

From 1856-1970, Denmark had a limited role for government, resulting in great prosperity

Denmark's size of government

Denmark's size of government

Denmark had a comparatively small government as a share of the economy

Denmark's government spending

Denmark's government spending

Denmark's government spending as a share of the economy increased dramatically

Spending vs. Economy

Spending vs. Economy

By 1995, Denmark's government spending as a share of the economy was comparatively high

Inflation

Inflation

As government spending soared, so did inflation (1970-1982)

Denmark's spending

Denmark's spending

Denmark led developed countries in reducing government spending

Denmark vs. other countries

Denmark vs. other countries

Denmark's spending as a share of the economy vs. the industrialized world

Government debt

Government debt

Formal and informal rules constrain Danish borrowing

Denmark's tax rate

Denmark's tax rate

Denmark benefits from a competitive business tax rate

Sales tax rates

Sales tax rates

Denmark has one of the highest sales tax (VAT) rates in the industrialized world

Personal income tax rates

Personal income tax rates

Denmark imposes a high top personal income tax rate at a comparatively low level of income

Economic Freedom

Economic Freedom

Denmark ranked highly in economic freedom except for the size of government spending as a share of the economy

Explore the book

The Free Enterprise Welfare State: A History of Denmark’s Unique Economic Model examines the Danish economic model, including its origins, and draw some important lessons from the experience, including how economic freedom underlies the high standards of living Danes enjoy, how its welfare state is financed with very high taxes on middle-income workers, and how Denmark’s experiment with unsustainably large government did not go well and had to be (largely) undone.

  • Chapter 1: Getting Rich Before Becoming A Welfare State     
    Over the past 150 years, Denmark has largely been an economic success story as a result of its steadfast dedication to free markets, free trade, and private property rights dating back to the 1850s. However, the country has had some major policy setbacks, most notably the major macroeconomic policy mistakes of the 1970s when an explosion of government spending contributed to rapidly increasing wages, serious structural unemployment, relatively rapid price increases, and a balance of payments crisis.
  • Chapter 2: The Evolution of Denmark’s Distinct Fiscal System     
    This chapter examines Denmark’s public finances and tax system, and identifies why the country has been able to spend and redistribute at high levels, while at the same time maintaining relatively sound public finances. The chapter also seeks to identify the reasons for Denmark’s long-standing fiscal conservativism.
  • Chapter 3: The Danish Health Care System—Policy and Performance     
    This chapter provides a brief overview of the key features and relative performance of Denmark’s health care system, including its use of private insurance and private for-profit care providers, and how Denmark compares to other high-income countries that also provide universally accessible health care.
  • Chapter 4: Denmark’s Primary and Lower Secondary Education System—Organization, Funding, Performance, and the Motivating Effect of School Choice     
    This chapter provides an overview of Denmark’s primary and lower secondary education system, its organization, administration, and relative school performance, with additional focus on Denmark’s diverse independent (privately operated) schools.
  • Chapter 5: Generous and Expensive—An Overview of Denmark’s Income Support System     
    The income support system in Denmark offers some of the most generous benefits among advanced countries around the world, but it is also one of the most expensive to administer. This chapter examines the system in detail: what it covers, how it’s funded, and how some unique—notably private occupational pensions—allow Danes to have among the highest retirement incomes in the OECD and relatively few poor pensioners.

 

Our Partners

This project is brought to you by the following organizations

Fraser Institute

The Fraser Institute

Institute for Economic Affairs

Institute of Economic Affairs

Institute of Public Affairs

Institute of Public Affairs

The Fund for American Studies

The Fund for American Studies

Acknowledgements

Made possible by generous grants from the John Templeton Foundation, the Lotte and John Hecht Memorial Foundation and the FI Foundation.

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