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Getting to Sweden: The Origins of High Tax Compliance in the Swedish Tax State

Chapter in book
Authors Marina Nistotskaya
Michelle D'Arcy
Published in Steinmo S. (ed.). The Leap of Faith: The Fiscal Foundations of Successful Government in Europe and America
Pages 33-55
ISBN 9780198796817
Publisher Oxford University Press
Place of publication Oxford
Publication year 2018
Published at Quality of Government Institute (QoG)
Department of Political Science
Pages 33-55
Language en
Links https://doi.org/10.1093/oso/9780198...
https://gup.ub.gu.se/file/207769
Keywords tax compliance, state capacity, Sweden in early modern period
Subject categories Political Science (excluding Public Administration Studies and Globalization Studies)

Abstract

Sweden is one of the strongest, most stable and high-compliance tax states in the world. As Steinmo (1993, 41) notes, “the hallmarks of the Swedish tax system have been its broad base, its stability, and its high revenue yield.” Tax revenue as a percentage of GDP was at least 25 percent above the OECD average from 1965 to 2013, putting Sweden in the top five tax-yield countries for nearly the entire period (OECD 2014). Since the 1980s collection losses (taxes levied but not paid) have been less than 1 percent of total tax receipts, standing at the level of between 0.3 and 0.5 percent for most of the period (STA 2013, 20). By comparison, in the UK a similar measure, known as the tax gap, was between 6 to 8 percent of total tax receipts in the period 2005–2013 (HM Revenue & Customs 2014, 4; authors’ calculations). Experimental data in the companion volume Willing to Pay? show that the Swedes are the most compliant taxpayers in the sample of five countries. Why is this the case? How did Sweden become one of the most successful states in terms of tax yield and compliance levels? While most of the classic works on the Swedish tax state have emphasized the constitutional structure of the state that emerged in the twentieth century (Steinmo 1993) and social democratic politics in the twentieth century (Jansson in this volume), we look at earlier periods, tracing the roots of Swedish exceptionalism as far back as the sixteenth century. We draw on the rich existing literature and add to it in a number of ways to make five key arguments as to how Sweden became Sweden and why it is such an exceptional case. First, we argue that the Swedish state adopted advanced methods for monitoring the availability, quality and use of the main economic assets for tax collection purposes at a very early stage, leading to both the creation of institutional capacity and the development much earlier than in most other European states of a direct vertical fiscal contract between the king, the embodiment of the state in the early modern period, and his subjects. Second, we show how the development of both the capacity to raise taxes and the fiscal contract were assisted by the use of the newly reformed Church of Sweden, which both collected population information for the state and legitimized its actions. Third, we argue that the fiscal contract was particularly strong because the extensive, accurate data available to the state allowed for fairness in the distribution of the tax and conscription burdens, and the military successes of the Swedish state in the early period of state-building delivered benefits to the population: peace within its borders, freedom from foreign rule, and law and order. Furthermore, the military allotment system – an organizational innovation, stimulated by war, for extracting tax in kind from a peasant economy – created conditions that could foster a horizontal contract between subjects. Fourth, we emphasize that these developments were aided by Sweden’s relatively unique social structure. Having a large free peasantry and a small weak nobility led the state into a direct fiscal contract with the broad bulk of the peasantry rather than, as happened elsewhere, through the land- and capital-owning nobility. Fifth, we show how the structure of the Swedish economy, particularly the late onset of industrialization, forced the state to find innovative administrative technologies, producing a tax structure and administration that could easily adapt to the collection of modern taxes. Taken together, these factors explain how Sweden, over the course of four hundred years, cultivated its fiscal capacity and strengthened the fiscal contract between ordinary taxpayers and the state. Its contemporary exceptionalism was set in motion centuries ago.

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