S&P Study Shows Tax Inflexibility In Northern Europe

by Ulrika Lomas, Tax-News.com, Brussels

11 March 2004

A study released on Tuesday by the ratings agency Standard & Poor’s has found that nations with inflexible taxation systems are less able to withstand sudden economic shocks.

According to the report, Scandinavian countries, topped by Sweden, were found to have the most inflexible tax systems, characterised by their high rates of taxation, extensive and complex welfare provision and relatively efficient tax administration.

Meanwhile, the US, the UK, Ireland, Canada, Australia and New Zealand were found to have above average levels of tax flexibility, allowing them to manipulate their tax laws and rates in response to changing economic conditions. However, topping the flexibility league table was South Korea.

Countries in the S&P study were found to have more flexible taxation systems if their laws contained more exemptions and loopholes, and if tax administration was poor. France, Germany and Italy were found to have similar characteristics to the Nordic nations, although tax productivity in the latter two countries was found to be poor. The ten EU accession states were given intermediate rankings.

Commenting on the results of the study, Moritz Kraemer, S&P director for European sovereign ratings, observed that: "Exemptions and loopholes and poor tax administration...may allow governments to generate additional revenue over time without the need to implement conspicuous tax rises."

Recommended