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2018 OECD Economic Surveys: Finland 2018

image of OECD Economic Surveys: Finland 2018

The Finnish economy is rebounding strongly after almost a decade of lacklustre economic performance. The revival in global growth and investment, coupled with competitiveness gains, is boosting exports. Consumption remains healthy despite slow income growth and both business and residential investment are buoyant. Nevertheless, a rapidly ageing population limits the long-term growth potential and weighs on public finances. Increased mobility of tax bases related to globalisation creates further challenges in raising revenue, while the tax system should also support growth, competitiveness and employment, and maintain its ability to contain income inequality. To ensure steady and inclusive growth, Finland’s employment rate, which is markedly lower than in the other Nordic countries, needs to be lifted. The welfare system has to generate strong work incentives, protect the vulnerable and adapt to a changing world of work. This Survey assesses the respective merits of introducing a universal basic income and streamlining the social benefit system in moving towards these objectives.

SPECIAL FEATURES: TAXATION; WELFARE

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Tax reform to support growth and employment

Finland raises a large amount of taxes to finance high-quality public services and redistribute income. Public finances are currently relatively solid and taxes and transfers reduce income inequality significantly. However, a rapidly ageing population pushes up public spending, while globalisation creates challenges in raising revenue. Hence, ensuring long-term fiscal sustainability requires both containing spending through efficiency gains in the provision of public services and raising revenue in a way that minimises deadweight costs and distortions weighing on growth and employment. Reducing further the tax wedge on labour income would lift employment. More revenue could be raised through a reduction in the range of goods and services subject to reduced VAT rates, higher taxes on consumption that is harmful to the environment or health and higher property taxes. A competitive corporate taxation, combined with international cooperation to avoid base erosion and profit shifting, is needed to foster local production.

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