The Free Enterprise Welfare State: A History of Denmark’s Unique Economic Model

Despite common misperceptions, middle-class workers in Denmark pay relatively high taxes for Denmark’s large government. Indeed, Denmark has a large welfare state paid for by some of the highest personal income and consumption taxes in the industrialized world. For example, when they buy goods (e.g. groceries) and services, Danes pay a 25 per cent value-added tax (VAT), similar to Canada’s GST, which is the second-highest among high-income countries. And Denmark’s top personal income tax rate (57 per cent), which is among the highest in the world, kicks in at a comparatively low level of income—roughly US$91,500 compared to US$176,672 in Canada and US$536,000 in the United States. In other words, it’s not just wealthy Danes who pay the top personal income tax rate. Finally, according to polling data released in 2023, Canadians overwhelmingly reject higher personal income taxes for the middle class and a higher GST to finance higher levels of government spending.