Denmark : [special feature: health].

200 Pages·2008·2.374 MB·English

by  OECD

OECD Economic Surveys V
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SPECIAL FEATURE: HEALTH 8
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Most recent editions Non-member Countries: Most recent editions
DENMARK
Australia, July 2006 Baltic States, February 2000
Austria, July 2007 Brazil, November 2006
Belgium, March 2007 Bulgaria, April 1999
Canada, June 2006 Chile, November 2007
Czech Republic, June 2006 China, September 2005
Denmark, February 2008 India, October 2007
Euro area, January 2007 Romania, October 2002
European Union, September 2007 Russian Federation, November 2006
Finland, May 2006 Slovenia, May 1997
France, June 2007 Ukraine, September 2007
Germany, May 2006 Federal Republic of Yugoslavia, January 2003
Greece, May 2007
Hungary, May 2007
Iceland, August 2006
Ireland, March 2006
Italy, June 2007
Japan, July 2006
Korea, June 2007
Luxembourg, July 2006
Mexico, September 2007
Netherlands, January 2008
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New Zealand, April 2007 E
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Norway, January 2007 D
Poland, June 2006 E
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Portugal, April 2006 o
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Slovak Republic, April 2007 o
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Spain, January 2007
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Sweden, February 2007 S
Switzerland, November 2007 u
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Turkey, October 2006 e
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United Kingdom, September 2007 s
United States, May 2007 D
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8

OECD
Economic Surveys
Denmark
2008
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
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The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,
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TABLE OF CONTENTS
TTaabbllee ooff ccoonntteennttss
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assessment and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Chapter 1. Key challenges for the Danish economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The risk of overheating requires urgent attention . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A structural assessment of the Danish economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Medium-term outlook and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Annex 1.A1. Progress in structural reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Chapter 2. Fiscal strategy: keepingwiththetargets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
What can be learnt from the successful fiscal management of the past 25years? . . 54
The new2015 Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Are the mechanisms to ensure that targets are adhered to strong enough? . . . . . . 62
How should the government’s balance sheet be managed?. . . . . . . . . . . . . . . . . . . . 66
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Chapter 3. Promoting employment andinclusiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
What is happening on the labour market in the current boom? . . . . . . . . . . . . . . . . 76
The NAIRU and the Phillips curve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
The labour share and industry composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
How to support the current expansion and achieve the jobs required
bythe2015Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Annex 3.A1. Labour market statistics: Register data andtheLabourForce Survey . 98
Annex 3.A2. Phillips curve estimation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Annex 3.A3. Labour share equation estimation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Chapter 4. Tax reform, hours worked and growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
The2004 and the2008-09income tax reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
How much do income taxes matter for hours worked?. . . . . . . . . . . . . . . . . . . . . . . . 113
How much do income taxes matter for other drivers of economic growth
andwelfare?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Undertaking tax reform –financing income tax cuts. . . . . . . . . . . . . . . . . . . . . . . . . . 119
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
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Chapter 5. Health: a major fiscal challenge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Health status, lifestyle and access to care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Spending on health and long-term care: What will the future bring?. . . . . . . . . . . . 129
Balancing public and private funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Efficient care: human resources, incentives and coordinated technology adoption. . . 140
Health and employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Annex 5.A1. Illustrative model for long-run trends: is healthcare spending
driven by income or technology? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Annex 5.A2. Work-force initiatives in the June2007tri-party agreement
and the quality strategy for public services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Chapter 6. Pension savings and capital taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Developments in pension savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Flexibility and market openness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Taxation of pensions and other capital income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Annex 6.A1. What do operating costs say aboutpensionfunds’efficiency?. . . . . . . 193
Boxes
2.1. The Danish fiscal sustainability indicator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.2. Operational targets and requirements in the2015Strategy. . . . . . . . . . . . . . . . . 61
2.3. Sweden’s fiscal rules and institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2.4. Interest rate risk management of the government debt portfolio. . . . . . . . . . . . 69
2.5. Recommendations regarding the medium-term fiscal strategy . . . . . . . . . . . . . 71
3.1. NAIRU estimates for Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
3.2. The labour share and industry composition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
3.3. The government’s job plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
3.4. Job centres in the new municipal structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
3.5. Recommendations regarding employment and capacity constraints . . . . . . . . 94
4.1. The2008-09income tax reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4.2. Cross-country estimation results for taxes and hours worked . . . . . . . . . . . . . . 114
4.3. Undeclared work has a remarkable pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
4.4. Recommendations regarding taxation and labour supply . . . . . . . . . . . . . . . . . . 120
5.1. The Danish health system in a nutshell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
5.2. Co-payments for healthcare in Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.3. Activity-based funding, incentives and waiting times in healthcare . . . . . . . . . 146
5.4. User choice among public and private service providers . . . . . . . . . . . . . . . . . . . 148
5.5. Recommendations regarding health, healthcare and sickness-related
employment problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
6.1. The voluntary early retirement pension afterthe2006welfareagreement . . . 175
6.2. Response to EU ruling on taxation of contributions toforeignpension funds. . . . 180
6.3. Effective tax rates on private capital pension and benchmark savings . . . . . . . 185
6.4. Recommendations regarding pension savings and capital taxation. . . . . . . . . . 189
Tables
1.1. Short-term economic outlook for Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.2. Relative size and productivity growth of the main economic sectors . . . . . . . . 33
1.3. Medium term scenario–in the absence of further reform. . . . . . . . . . . . . . . . . . 34
2.1. Consolidated general government balance sheet, end of year1994 and2006 . . . . 67
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3.1. Total inflow of workers and workers from the new EU member states. . . . . . . 82
3.2. Transfer payment recipients, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
3.3. Participants in active labour market programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.A2.1. Phillips curve estimation –empirical results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
3.A3.1. Labour share and value added share by industry . . . . . . . . . . . . . . . . . . . . . . . . . 105
3.A3.2. Labour share equations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
4.1. Labour supply effects of the tax measures as estimated bythegovernment. . . . . 112
4.2. Top 10countries for migration in and out of Denmark. . . . . . . . . . . . . . . . . . . . . 117
5.1. Illustrative scenarios for public expenditures2005-2050 . . . . . . . . . . . . . . . . . . . 131
5.2. Recipients of long-term care in Denmark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
5.3. Scenarios for labour supply and demand in public-service professions . . . . . . 143
5.4. Sickness-related benefits and healthcare utilisation . . . . . . . . . . . . . . . . . . . . . . 153
5.5. Medical conditions motivating disability benefits. . . . . . . . . . . . . . . . . . . . . . . . . 155
6.1. Description of the Danish pension system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
6.2. Pension contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
6.3. Illustrative calculations of gross replacement rate by earnings . . . . . . . . . . . . . 178
6.4. Nominal and real tax rates for capital income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
6.A1.1. Portfolio allocation in pension funds, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Figures
1.1. Taylor rule interest rates for Denmark and euro area countries. . . . . . . . . . . . . 23
1.2. House prices and mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.3. Actual versus structural fiscal balance and revenue . . . . . . . . . . . . . . . . . . . . . . . 28
1.4. GDP per capita and why it differs across countries. . . . . . . . . . . . . . . . . . . . . . . . 30
1.5. Total labour supply is around average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1.6. Productivity growth1966-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1.7. Productivity growth within sectors and from reallocation across sectors. . . . . 33
1.8. Debt has fallen more than planned, but consumption has grown
more than planned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1.9. Adults living from passive income benefits or participating in labour
market programmes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
1.10. Top marginal tax wedge on labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.11. Trade specialisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
1.12. Educational attainment and employment among foreign-born andnatives. . . . . 41
1.13. Learning outcomes in compulsory education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
1.14. Age distribution of public and private employment . . . . . . . . . . . . . . . . . . . . . . . 43
1.15. Relative earnings in the public and private sector. . . . . . . . . . . . . . . . . . . . . . . . . 44
2.1. Fiscal consolidations and relaxations since the1970s . . . . . . . . . . . . . . . . . . . . . 55
2.2. Long-term development of public finances implied bythe2015Strategy. . . . . 57
3.1. Labour market indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
3.2. Bottlenecks in employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
3.3. Composition of wages growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.4. Actual and structural unemployment rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.5. Incidence of long term unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.6. Labour share across countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
3.7. Labour share in Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
3.8. Change in employment-to-population ratios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
3.A1.1. Comparison of labour market data from the Labour Force Survey and CRAM. . . . 99
3.A2.1. NAIRU estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
4.1. Marginal tax wedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4.2. Average hours worked and marginal tax wedges over recent decades . . . . . . . 113
4.3. Simulated effect on women’s labour supply of lowering marginal taxrates
to Australian levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.1. Indicators of health status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
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5.2. Lifestyle matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
5.3. Access to physicians is highly equitable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
5.4. Health care spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
5.5. Composition of healthcare spending and the extent of private funding . . . . . . 135
5.6. Older persons receiving long-term care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
5.7. Older persons receiving long-term care and relation withfemaleemployment . . 140
5.8. Health system resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
5.9. Earnings of healthcare professionals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
5.10. Waiting times, spending and incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
5.11. Involvement of non-public providers in health and long-term care. . . . . . . . . . 148
5.12. In-patient versus out-patient treatment and average length of hospital stays. . . . 151
5.13. Correlation of cost and volume movements for pharmaceuticals . . . . . . . . . . . 152
5.14. Healthcare provision and disability benefit rates . . . . . . . . . . . . . . . . . . . . . . . . . 154
6.1. Contributions, assets and benefits paid in relation toprivatepensionproducts. . 173
6.2. Gross savings and pension contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
6.3. Projected pension income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
6.4. Illustrative calculations of components of the pension level
andreplacement rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
6.5. Country grouping according to the tax treatment of private pensions . . . . . . . 184
6.6. Effective tax rates on private pension and benchmark savings. . . . . . . . . . . . . . 186
6.A1.1. Pensions assets, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
This Survey is published on the responsibility of the Economic and Development
Review Committee (EDRC) of the OECD, which is charged with the examination of
the economic situation of member countries.
The economic situation and policies of Denmark were reviewed by the Committee
on 9January2008. The draft report was then revised in the light of the discussions
and given final approval as the agreed report of the whole Committee on
Tuesday22January2008.
The Secretariat’s draft report was prepared for the Committee by JensLundsgaard
and DavidTurvey under the supervision of StefanoScarpetta.
The previous Survey of Denmark was issued in May2006.
Information about the latest as well as previous Surveys and more information
about how Surveys are prepared is available at www.oecd.org/eco/surveys.
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6 OECD ECONOMIC SURVEYS: DENMARK – ISBN 978-92-64-04289-6 – © OECD 2008
BASIC STATISTICS OF DENMARK
THE LAND
Area (sq. km) 43094 Population of major urban areas, 2007, thousands
Agricultural area (sq. km) 25890 Copenhagen 1146
Århus 228
Odense 159
Ålborg 101
THE PEOPLE
Population, January2007, thousands 5447 Total employment, 2006, thousands 2808
Number of inhabitants per sq. km 125 By sector:
Population, annual net natural increase Agriculture 83
(average2000-2006, thousands) 8 Manufacturing 404
Natural increase rate, 2006 1.8 Construction 180
(per 1000inhabitants) Market services 1140
Community, social and personal services 1001
THE PRODUCTION
Gross domestic product, 2006 Gross fixed capital formation, 2006
Kr billion 1642 Kr billion 355
Per capita (USD) 50825 Per cent of GDP 21.6
Per capita (USD) 10985
THE GOVERNMENT
Public consumption, 2006 25.7 Composition of Parliament Number of seats
Per cent of GDP Liberals 46
General government current revenue 55.2 Social Democrats 45
Per cent of GDP Danish People’s Party 25
Public gross fixed capital investment 1.9 Socialist People’s Party 23
Per cent of GDP Conservatives 18
Social Liberals 9
New Alliance 5
Unity List–Red-Green Alliance 4
North Atlantic 4
Total 179
Last general elections: 13November2007 Next general elections: 13November2011 (at the latest)
THE FOREIGN TRADE
Exports, 2006 Imports, 2006
Exports of goods and services Imports of goods and services
Per cent of GDP 51.9 Per cent of GDP 49.1
Decomposition of merchandise exports, 2005 (% of total) Decomposition of merchandise imports, 2005 (% of total)
Agricultural products 9.0 Intermediate goods for agriculture 2.1
Manufactured products 73.5 Intermediate goods for other sectors 39.1
of which:Machinery and instruments 26.6 Fuels and lubricants 6.6
Other manufactured products 46.9 Capital goods 14.1
Fuels, etc. 17.5 Transport equipment 6.9
Consumer goods 28.4
THE CURRENCY
Monetary unit: Krone January2008, monthly average of spot rate
DKK per $ 5.06
DKK per € 7.45
EXECUTIVE SUMMARY
Executive summary
T
he Danish economy has been performing well over the past decade and combines a relatively high
level of GDP percapita with a narrow income distribution. Strong growth in recent years has brought
the economy to its capacity constraints. A strong positive output gap has emerged; unemployment
reached a 30-yearlow already by mid-2006, and it has fallen further since then. Avoiding
overheating is an urgent challenge. Private-sector agreements from spring2007avoided
unsustainable wage hikes, but local agreements now show some acceleration, and with yet higher
demands in the public sector, a general wage spiral could be set in motion. Given these risks, fiscal
policy should not add stimulus: priority initiatives should be offset by savings elsewhere; and
excessive public-sector wage growth and continued spending slippages in municipalities and
regional authorities should be avoided.
Over the past decade, an increasing share of GDP has been channelled towards public services
like health, education and care for the elderly and children. But looking ahead, the room for
additional spending in these areas is limited by demographic changes and early retirement. At
present, more than half of those aged60-64leave the labour market through the voluntary early
retirement scheme, and this fiveyear scheme will be maintained even after2019, when the general
retirement age is gradually raised. Denmark faces a strategic choice: either promoting employment-
oriented reforms or developing mechanisms for private funding for services that are publicly funded
today. The first option is probably the best, as it goes hand-in-hand with the ambitious –but costly–
priorities in Danish social and welfare policies. And effectively the government’s2015Strategy takes
this direction by positing higher structural employment and no reduction in average hours worked in
a context where demographics would imply a decline in both.
Ensuring that the sound fiscal position is sustained. The targets in the2015Strategy are
sensible, but clearer mechanisms are needed to ensure they are met. In particular, adherence to the
stipulated annual growth rates for public consumption is vital, as experience shows that it is very
hard to reverse overruns.
Helping marginal groups to secure a foothold in the labour market. Strong demand as
well as activation and benefit reforms have successfully brought down unemployment, but more
than one in five working age adults still live from passive income benefits –substantially more than
in other countries. Activation could be more cost effective and benefits could be adjusted to give
participants clearer incentives to get the most out of activation.
Promoting labour supply and skill acquisition through tax reforms. With one of the
highest tax-to-GDP ratios in the OECD, Denmark should constantly consider how to refine the tax
structure to reduce distortions. Social security contributions, income and consumption taxes
combined create a marginal tax wedge of over 70% for four out of ten full-time employed. Reducing
the top tax would help stimulate labour supply and it would cost relatively little.
8 OECD ECONOMIC SURVEYS: DENMARK – ISBN 978-92-64-04289-6 – © OECD 2008