The Evolution of Denmark’s Distinct Fiscal System

In some ways, Denmark is a paradox. Like its Scandinavian neighbours, the country has a large public sector (as measured by government spending as a share of GDP) and sig-nificant economic redistribution, earning it a reputation in North America as a “socialist country” (Moody, 2016). At the same time, however, Denmark consistently ranks among the freest economies in the world, with relatively light regulation of business and labour markets, sound monetary practices, minimal barriers to international trade, and strong protections of persons and their property. Furthermore, for at least two decades, Denmark maintained one of the developed world’s lowest levels of public debt as a share of its economy. Its commitment to sustainable public finances suggests that it is well-prepared for future fiscal challenges related to its ageing population. 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.