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Economy at a Standstill: The Problem of High Marginal Tax Rates in Finland

Author

Listed:
  • Kuusi, Tero
  • Kotamäki, Mauri
  • Kirkko-Jaakkola, Mikael

Abstract

Our analysis indicates that high marginal tax rates may diminish economic activity and weaken public finances in Finland. The existing literature credibly demonstrates that, particularly among highly productive workers, the distortive effects of taxation are more pronounced, impeding both career progression and intangible investments. Supporting research and development (R&D) activities can partially offset the adverse effects of stringent taxation. However, the innovation system should be optimized to effectively internalize the externalities associated with innovations.

Suggested Citation

  • Kuusi, Tero & Kotamäki, Mauri & Kirkko-Jaakkola, Mikael, 2025. "Economy at a Standstill: The Problem of High Marginal Tax Rates in Finland," ETLA Reports 158, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:report:158
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    File URL: https://www.etla.fi/wp-content/uploads/ETLA-Raportit-Reports-158.pdf
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    More about this item

    Keywords

    Taxation; Marginal tax rate; Laffer curve; Externalities; Intangible capital;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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