Thursday, June 09, 2011

Law & Society & Sweden & Taxes

-- Posted by Neil H. Buchanan

The Law & Society Association's annual conference was held in San Francisco this past weekend. For the seventh year in a row, there was a large slate of tax-related sessions, with a total of 46 papers presented on twelve different panels. (The tax sessions for the three full days of the conference can be found here, here, and here.) As the organizer of those sessions, I take on the task each year of trying to put together papers with similar themes onto panels, which (I hope) allows scholars with overlapping interests to interact in ways that will generate insights and help advance the work of all of the authors.

The challenge in creating sessions is in finding four or five papers that fit together in some coherent sense. Often, it is easy, when (as usually happens) there are a group of papers on international tax issues, another on gender-related issues in tax, another on charitable organizations, and so on. Other sessions require a bit more ingenuity to find a common theme, and authors are indulgent when my attempts to put orphan papers together do not lead to perfect harmony. It does not hurt that tax scholars are a surprisingly eclectic bunch, with our interests hardly limited to green-eyeshade issues, and with corporate tax scholars often also quite knowledgeable about, say, family law issues in the tax code.

An organizer of such sessions must confess, of course, to relying on some simple rules. Each year, for example, I can count on a number of submissions that deal with tax issues in countries other than the United States. (Law & Society is an international organization, and our research group -- "Law, Society, and Taxation" -- includes a healthy mix of Canadians, Brits, Australians, and scholars from a few other countries. Not all non-U.S. scholars write comparative pieces, of course, nor do all U.S. scholars ignore the outside world.) I am somewhat embarrassed to admit, therefore, that my marathon organizing session each year involves in part my looking at paper titles with a simple decision rule in mind: If another country is mentioned in the title, it goes on the "comparative tax law" panel. It isn't deep, but it works.

This rule could potentially lead to sessions with four or five people being thrown together with nothing more in common than having written papers about one of the countries in the world not called the United States of America. Happily, each year the papers have had (or the authors have been able to create) similar themes among the "not U.S." papers. This year, it turned out even better than I could have hoped. On a panel with papers discussing tax law issues in Germany, Australia, China, and Sweden, the common theme turned out not to be the comparative nature of the scholarship, but rather the research methodology that the authors used. All of the authors, deliberately or not, relied to a significant degree on what might be called the anthropology of government decision-making, describing how tax policies are formed in the context of social attitudes about what we might tax.

From my (admittedly idiosyncratic) standpoint, one of the most interesting papers was written by Lotta Bjorklund Larsen, an anthropologist at Stockholm University. She described the importance to Swedes of hard work, an attitude deeply embedded in the culture as part of the Protestant Work Ethic. As Dr. Bjorklund Larsen put it, it is probably no surprise that the Swedes gave the world Ikea, because they believe that one should not just put in an honest day's work at the job, but that work around the home is important as well. Apparently, it is relatively rare for Swedish households to hire handymen and other people to perform tasks inside the home, when the householder is capable of doing it herself or himself.

Americans tend to think of Sweden in terms of its comprehensive welfare state and relatively high level of taxes, with conservatives warning against the dangers of a Swedish-style mega-state, and liberals admiring its efficient and humane social welfare system. We tend to forget (or never knew) just how industrious the Swedish people are. A nation of only 9 million people has, after all, had a much greater influence on global capitalism than might reasonably have been expected.

As a tax scholar, two implications of this Swedish ethos of hard work were especially interesting to me. First, Bjorklund Larsen pointed out that the Swedish system imposes taxes on work in the home provided by others, but not on the implicit income from doing one's own work. While this is true in the U.S. as well (and in other countries with income tax systems), it is potentially more salient in a country with high marginal tax rates. One might be tempted to conclude, therefore, that Swedes do their own work in the home, rather than hiring specialists, because their tax rates are relatively high. If I understood Bjorklund Larsen correctly, however, this is exactly backward. That is, the Swedish people are so inclined to be do-it-yourselfers that the implicit tax difference between hiring outsiders and doing one's own work is simply irrelevant to people's decisions.

The second interesting implication of the Swedish expectation that everyone will work is an extension of the first insight. Just as we should not understand taxes as the cause of high rates of self-provided home labor, we should not be surprised that Swedish tax rates -- rates that American right-wing ideologues describe as "punishingly high" -- have not led to low levels of work effort in modern Sweden. Even a nation that no longer attends church maintains its commitment to hard work and the Protestant Ethic, based on deep social commitments to the dignity and social importance of being a contributing member of society.

For an American conservative, the lesson of this insight would probably be that we cannot simply assume that labor supply elasticity is low everywhere, making the Swedish model non-importable. ("We'll take your some-assembly-required coffee tables, but keep your tax rates.") This is true as far as it goes, but that is not an especially startling idea. The impact of taxes (on work, and on everything else) is an empirical matter, and we must always remember the context in which we measure the effects of taxes on behavior.

For an American liberal, therefore, the most interesting take-away from Bjorklund Larsen's paper would probably be that high tax rates can coexist with high levels of work effort. We are told so often that taxes kill work effort, after all, that it has become all but a matter of religious faith that we cannot raise tax rates. Americans, if anything, have shown that they are willing to work very, very hard (long hours, and very few days off). Research has also shown that very few people reduce their work effort in response to tax changes. When we return to the debate over allowing the Bush/Obama tax cuts to expire, we should remember to allow evidence, and not blind faith, to inform our decisions.


michael a. livingston said...

But you're missing the key point, I think, which is the influence of culture and the possibility of "transplanting" tax or other legal norms from one culture to another. I think this is a much more difficult problem than you suggest and one which readily crosses conventional political lines.

bjn said...

"Research has also shown that very few people reduce their work effort in response to tax changes."

This is the (lack of) effect I have always assumed - and it ties in nicely with your 'Billionaires' review. It would have been nice if the statement were a hyperlink to the supporting research.

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