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Denmark: Highest Tax Rate and Happiest People. Why?

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Ever wondered why Denmark is the happiest country…but they also have the highest tax rate? Denmark taxes and happiness — let's dig into this.

Most of us don’t like paying taxes because it is more money out of our pockets.

This can be especially true if we do not believe in the types of policies or programs our tax money is funding. Because of this, you would think that the country with the highest tax rate in the world would have the most miserable people, right?

It turns out that Denmark has the highest tax rate in the world with a 48.9% tax-to-GDP ratio (in 2018, Denmark's federal tax rate is 55.8%).  In comparison, India’s tax-to-GDP ratio is 10.6%, Japan’s is 27.4%, and the United States is 28.2%.

But there is something else that Denmark — the country that brought us Hygge — is known for: being the happiest country in the world. Isn’t that interesting?

Why is Denmark so happy…especially given how much they pay in taxes?

Every year, the Danish work until June 17th in order to pay their tax burden.  In comparison, the United States’ tax freedom day is April 9th.

Even though the Danish must work two entire extra months out of the year just to pay their tax burden — half the year in total — they are happier than we are as a whole. In other words, happiness or lack thereof cannot be dictated by the amount of taxes paid (unless it increases the Danish people’s happiness to pay taxes).

Happiness also is not dictated by money alone, either: while Denmark is a wealthy country — Denmark’s 2009 GDP per capita is $55,992 — Norway has a much higher GDP per capita of $79,089, yet ranked 9th in terms of happiness, not first.

So if both tax burden and GDP are not indicators of happiness, then what are?

Main Indicators of Happiness

It turns out there are several different ways to quantify the happiness of a nation.

In 2006 the University of Leicester undertook a study that combined both economics and psychology in order to find out which countries were the happiest in the world. Analysis showed that,

“a nation's level of happiness was most closely associated with health levels (correlation of .62), followed by wealth (.52), and then provision of education (.51)”.

Denmark ranked No. 1, and the United States came in at 23rd on the world’s first ever “World Map of Happiness”.

This study was followed by a University of Cambridge study in 2007 that showed the Danish as the happiest people in Europe. The Cambridge study concludes that,

“[o]ne of the most consistent trends is that those with the highest levels of happiness also reported the highest levels of trust in their governments, the police and the justice system, as well as those around them. Happier people also tended to have plenty of friends and acquaintances, as well as at least one very close friend, or a partner.”

A final study was conducted in 2009 by the OECD (Organization of Economic Co-Operation and Development) and once again Denmark was named the happiest country. This study was based on “subjective well-being, defined as life satisfaction”, and asked the question, “D[o] people feel like their lives [a]re dominated by positive experiences and feelings, or negative ones?”

How Can We Increase Our Happiness as a Nation?

I can say with certainty that happiness is not based on Gross Domestic Product (GDP) or the amount of our tax burden alone.

Most of us have limited resources and know that the lack of money can make us pretty miserable around bill-paying time.

The same is true if we owe the IRS a lot of money and April comes around.

However, gobs of money and low tax burdens do not have a strong correlation to true happiness.

As listed above, some of the studies showed that trust in government, health, wealth (enough to be comfortable), and education are all good indicators of happiness, and are all prevalent in Denmark. This begs the question as to why Americans are not higher up on the ‘happy chain’?

If we take the same indicators used in the studies above, we can start to see why we may be lacking in happiness. Overall, there is a growing distrust of government in the United States.

Nearly 1/3 of Americans are obese, diabetes and heart disease are also wearing on our overall health. There is also a prevailing cultural obsession with those who are wealthier than us (keeping up with our neighbors and idolizing celebrities), and with consumerism, both of which can lead to discontent and to a lot of debt.

We’ll need to start tackling these issues before we can beat Denmark at the happiness game.

Gobs of money and low tax burdens do not have a strong correlation to true happiness. Click To Tweet

What do you think are indicators of happiness? How do you think Americans can improve their happiness as a nation?

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Amanda L. Grossman is a Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 10 years, her money work helping people with how to save money and how to manage money has been featured in Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.

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