To reiterate what the previous article has already stated, equality in Europe is very different than equality in America (where I assume most of my readers are from). Equal outcomes are rated higher than equal opportunity. Also note that “effective” tax rates are almost impossible to come by as it would have to take into account social security, VAT, capital gains and many more taxes. Marginal income tax rates are a good guide to a countries view on redistribution of income from the rich.
In general, European countries have a larger public sector influence over the economy (usually above 40% of GDP) and large publically financed debts (usually above 70% of GDP) and to sustain it they have the highest average marginal tax rates averaging 25.7%, according to Eurostat, beating out Russia’s flat tax rates of around 14% and America’s progressive tax system by a significant amount. Higher tax rates are also not necessarily correlated with higher growth rates according to the Tax Policy Center , though, the northern European and Scandinavian countries have a combination of both.
Case and point, Denmark (59.7%, top effective rates) and Sweden (56.4%, top effective rates) who have respective growth rates of .5% and 2.7%. Surprisingly, their tax rates have come down by around 70 and 80% from the 1980’s in response to the debt crisis the northern Europeans experienced in the early 1990’s. Reforms of government programs to make them more sustainable on entitlement problems have made the Scandinavians the envy of even the neo-liberal British magazine The Economist.
European tax rates do not necessarily have a positive impact on productivity. This makes sense because larger marginal income tax rates discourage working, along with beneficial unemployment and retirement benefits. The OECD reports that Americans have one of the largest output per hour of work (measured as GDP per hour). While the average European countries (excluding service oriented Luxembourg and Ireland who benefit disproportionately) are 20-30% less productive than their continental counterparts.
Tax rates, in the end, are decided by public voting which reflects the values of the society. Efficiency and equality of outcomes are often tradeoffs in tax policy which also have to take into account increases in unfunded liabilities such as healthcare, unemployment and social security. Luckily, European countries have governmental stability and legitimacy (exception of Greece which is its own special case as previously discussed). It is a public choice to choose the tradeoff of less growth for a more equal society in terms of outcomes even if it comes at the expense of the rich and their potential beneficial investments.
In conclusion, the notion of European marginal taxes rates comes at costs with other benefits. Productivity vs. a low level of inequality according to the most trusted measure the Gini Index. Objectively, their decision to politically change their system to fit their values is what every society wishes to have.