By Grace Kinum and Katie NG

Sweden believes that because everyone contributes to welfare through taxes, everyone deserves equal access to those welfare benefits(“Taxes in Sweden”). Because they want extensive benefits for everyone, this requires higher government spending, and thus, they must increase government revenue through higher taxes, which Sweden is committed to. The United States on the other hand, taxes less and is more market-driven than welfare-driven, and citizens have more responsibility to handle their healthcare, education, and retirement. Sweden’s universal welfare system and the United States’ welfare system are vastly different. The two systems have the same goal: to redistribute wealth and help people in poverty by providing them with healthcare, childcare, and other social benefits. In the United States, these programs are directed at low-income families and individuals who are considered most in need. In comparison, Sweden employs a universal system where the benefits apply to all citizens regardless of financial status. These benefits include: universal healthcare, parental leave, unemployment benefits, and housing allowances and supplements, as well as many others. While some of these benefits are also present in the United States model, the differences have largely contributed to the high standard of living in Sweden. Their emphasis on education and public access to healthcare, which is largely privatized in the United States, has contributed to a highly educated workforce and more equitable wages (OECD). It is up to governments to decide how much to tax and, therefore, how much to spend on reducing this inequality. We compare and contrast Sweden and the United States’ taxation and transfer systems and the effects on inequality to highlight the pros and cons of each system. 

In Sweden, most people pay a local tax on their annual income depending on where they live, but the average local tax rate is around 33% (“Taxes in Sweden”). In contrast, the average individual income tax in the United States is 14.5% (York). Both countries have progressive taxes, meaning that the more taxable income you make, the higher the tax rate that you pay on the marginal dollar. In Sweden, the highest tax is 52.2% (“Sweden Tax Rates and Rankings”), while the highest federal income tax in the US is 37% (Durante). This shows that while both systems have similar structures, Sweden taxes income much more on average, with higher marginal tax rates for higher incomes. 

Data Analysis

Figure 1

International Monetary Fund. Tax Revenue (% of GDP). World Bank, https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?end=2022&start=1972&view=chart. Accessed 28 Apr. 2025

Figure 1 shows tax revenue as a percent of GDP for Sweden and the US using data from the International Monetary Fund. Figure 1 shows that Sweden’s tax revenue as a percent of GDP is much higher than the United States. Collecting more tax revenue may lead to higher spending per capita on transfer programs for Sweden. 

Although these transfer programs have many benefits, they are also expensive, and in Sweden, social welfare spending accounts for almost 40% of their GDP. In the United States, the figure is significantly lower at just above 16%. In recent years, Neoliberalism has been on the rise in Sweden, and many politicians have supported lowering the percentage of GDP that goes towards transfer programs. They believe spending so much on welfare has reduced their ability to remain competitive in the international market. The changes in recent years have not largely affected the general universal welfare model, and Sweden’s programs remain mostly intact, but the Gini coefficient has been rising in recent years (fig. 1). 

Figure 2

OECD. Income Distribution and Inequality (GINI Coefficient). OECD Data Explorer, https://data-explorer.oecd.org/vis?fs[0]=Topic%2C1%7CSociety%23SOC%23%7CInclusion%20and%20equality%23SOC_INE%23&pg=0&fc=Topic&bp=true&snb=2&df[ds]=dsDisseminateFinalDMZ&df[id]=DSD_WISE_IDD%40DF_IDD&df[ag]=OECD.WISE.INE&df[vs]=1.0&dq=.A.INC_DISP_GINI…_T.METH2012.D_CUR.&pd=2010%2C&to[TIME_PERIOD]=false&vw=tb.

The number of transfer programs and their efficiency and budget contribute heavily to the inequality in each country. Figure 2 shows the Gini coefficient since 2012 in Sweden and the United States. The Gini coefficient is a statistic that measures income inequality on a scale from 0 to 1, with zero being perfect equality and one being complete inequality. This coefficient is derived from the Lorenz Curve which plots the cumulative share of income received by the cumulative population, showing what percentage of the population has what share of income. There is a constant trend of Sweden’s Gini coefficient being about 0.10 lower than the United States, showing less inequality in Sweden. Both countries’ coefficients have increased slightly over the years. However, the gap remains because of Sweden’s commitment to transfer programs that use the higher tax revenue they collect to address inequality concerns. 

Conclusion

The United States and Sweden take different approaches to both taxation and welfare systems. Sweden’s commitment to equality means higher taxes, but the revenue from these taxes is set heavily towards social welfare programs. In comparison, the United States has focused on inequality by having lower tax rates and focusing its welfare programs on the lower class. Sweden’s universal welfare system has been much more successful, which is reflected in its lower Gini coefficient, mostly because the universal welfare system makes systems that are privatized in the United States accessible to everyone.

References

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