That's the word from the NYT. According to the article people are fleeing Denmark because of its 63 percent top marginal tax rate. The net rate of departure is supposedly 1000 people per year, approximately 0.002 percent of the population. The article tells us that this net rate actually masks a more rapid rate of departure of high-skilled people, who are being replaced by less-educated workers. The article presents little evidence that the economy is suffering from this exodus. Denmark currently has a 3.6 percent unemployment rate. Its economy is projected to grow by 3.5 percent in 2007. The article warns us that growth will fall to 1.0 percent over the next three years. (The main reason for the projection of slower growth is a U.S. style housing market crash. Denmark's central bankers were no smarter than Alan Greenspan.) Of course, since Denmark's population is barely growing, that translates into about 0.7 per capita growth, the number that economists usually care about. That's not great, but not exactly a nightmare. In terms of sustainability, Denmark has a budget surplus of more than 2 percent of GDP (equivalent to $280 billion a year in the U.S.) and a debt to GDP ratio of around 26 percent. Its current account surplus is also in excess of 2 percent of GDP. In short, if Denmark is suffering because a relatively small number of highly educated workers find the tax rate too high, there is not much evidence in the data.
--Dean Baker
