Finnish Centre of Excellence in Tax Systems Research

FIT analyzes the effects of the tax-benefit system and regulation on individuals, firms, and the society, and provides new credible evidence on the determinants of optimal policy. Achieving the aims of taxation and other related policies requires careful attention to details of tax system design. In the spirit of Esther Duflo’s (2017) “economist as plumber” metaphor, the economist-plumbers of FIT consider the design of the tap and the detailed layout of the pipes that make up a tax system. We provide research results that help to locate and fix leakages in the system: Leakages stem from individuals changing their behavior due to taxes and administrative rules, which may reduce economic activity, tax revenue, and welfare. Such costs need to be carefully measured and weighed against the benefits of taxation.

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The total tax revenue collected in Finland in 2021 was 108 billion euros, or 43 % of GDP. Collecting this much tax revenue may have large consequences for the functioning of the economy.

What is the idea of ​​taxation?

The tax system affects the lives of all of us from birth to grave, whether we always fully notice it or not. Taxes provide the revenue to fund public services that we all use over the course of life. The tax system – including taxes, benefits, and the practices of tax collection – also distributes income between people. A large fraction of overall economic resources in the Nordic countries are channelled via the government as tax revenue. Therefore, the design of the tax system is vastly important for society. A well-designed tax system raises the required revenue with lowest possible cost and levels the playing field for all to prosper.