The tax level

The chart below shows total direct and indirect taxes as a percentage of gross domestic product (GDP) over the years 1972-2005 for Norway, Sweden, Denmark, Finland, the EU and the US.

The chart below shows total direct and indirect taxes as a percentage of gross domestic product (GDP) over the years 1972-2005 for Norway, Sweden, Denmark, Finland, the EU and the US.


Source: OECD and Statistics Norway.

The chart illustrates that the tax level (measured as a percentage of GDP) is lower in Norway than in Sweden and Finland, and more or less on a par with the level in Denmark. The level in Norway is somewhat higher than the EU average, and considerably higher than that in the US throughout this period.

Although tax as a percentage of GDP may be useful as an indicator of the role of the public sector in the economy, this method of measurement is subject to distinct limitations:

  • A country that mainly makes use of direct transfers to support various groups will feature higher taxes as a percentage of GDP than does a country that mainly makes use of various tax allowances, etc., even if the overall level of support is identical.
  • Tax as a percentage of GDP is affected by the extent to which various social security benefits and other transfers are taxable. In a country like Norway, where these are often taxable, tax as a percentage of GDP will be higher than in a country where such income is tax-exempt, even if the net benefits are the same.
  • Tax as a percentage of GDP will be affected by whether countries have public or private pension systems. A public pension system often involves savings through the tax system (social security contributions). Such countries will feature higher taxes as a percentage of GDP than will countries where such arrangements are organised in the form of payments to private pension schemes.
  • The tax level in a country as a percentage of GDP will also be affected by where it finds itself in the business cycle, because tax revenue growth resulting from changes in economic activity may differ from GDP growth. Consequently, tax as a percentage of GDP may change without any amendment to the tax rules. In other words, changes in tax as a percentage of GDP will not necessarily reflect any differences in tax policy, whether over time or between countries.
  • Governments may also have other sources of income than tax
  • Because of weaknesses in the indicators used to measure the tax level in Norway and in other countries, it is important to be cautious when interpreting changes from one year to the next, as well as differences between countries.