The NYT ran an article last week on young workers leaving Denmark to escape high taxes. The main example given was that of Thomas Sorensen, a software engineer who now lives in Frankfurt. The photo caption claimed that he works in Germany “to avoid the 63 percent top tax rate in his homeland.” When you actually read the article, though, you learn that Sorensen’s departure from Denmark had at least as much to do with the fact that his Spanish wife didn’t like living there.
Last summer, Dansk Industri (a.k.a. the Confederation of Danish Industries) polled 991 Danish expats about why they’d left. The pollsters listed 11 possible reasons for abandoning the country, and asked respondents how much they agreed with each. The explanation that resonated most with Danes abroad was “I felt like living in another country.” Reason No. 2: “I wanted to strengthen my career opportunities.” Reason No. 3: “Culture and/or physical possibilities (e.g. climate) are better abroad.” Then, at No. 4: “Taxes are lower abroad.” In case you were wondering, reason no. 11 was “Public services are better abroad.” (Translations are by a nice guy at Dansk Industri, with some tweaks by me; the poll results are not available online.)
Taxes are the only one of those top four factors that Danish politicians can do much about, so I can understand why Dansk Industri has made cutting rates on high earners a priority. (It’s not just Dansk Industri; the top rates hit such a wide swath of the workforce that at least one labor union, Dansk Metal, has been calling for tax cuts too.)
But it seems inaccurate to pin all or even most of the blame for Denmark’s modest brain drain (“hjerneflugt,” they call it) on tax rates. Ambitious, adventurous young Danes leave mainly because they’re ambitious, adventurous, young, and fluent in English–and the world’s most important centers of finance, commerce, and culture don’t happen to be in Denmark. Plus, there are many sunnier, warmer places in this world.
When I was in Denmark last fall, the bigger concern among businesspeople was over the difficulties they were having in luring skilled non-Danish workers to the country. I’m willing to grant that taxes might play a bigger role there–although foreigners who stay three years or less face a pretty modest tax burden. But I still think the crucial factors are that Denmark is a small, tight-knit country with gloomy weather and a language that nobody outside Denmark knows. It’s a tough place for an outsider to fit into (if somebody ever gets around to translating Knud Romer’s Den som blinker er bange for doden into English, we can all learn how tough).
But as I’ve argued at great length already, that tight-knit culture and the hugely expensive Danish welfare state both seem to have contributed in a big way to the country’s impressive economic success over the past 15 years. So maybe encouraging immigration by cutting taxes (and with them the size of government) isn’t the best possible solution to Denmark’s labor shortage. What is? Having more kids, I guess.
Update: Another post on the topic here.