Scandinavian Local Income Taxation: Lessons for the United States?

This paper describes and analyzes the experiences of Norway. Sweden and Denmark with local income taxation in order to test the validity of comments made by numerous American economists about such taxes. Although local income taxes are their major source of locally raised revenue, it appears that the problems of revenue instability and tax base mobility are not serious in these countries. Fiscal disparities have been greatly reduced through consolidation of government units and heavy reliance on transfers from the national government, and these institutional arrangements may have reduced local autonomy in some important respects. The heavy reliance on income taxes by all levels of government is one reason for the extremely high marginal tax rales to which most workers are subject.