Does a lower income tax make for a happier country?

According to the World Happiness Report, Finland is the happiest country in the world. The report was compiled from the answers of a series of questions relating to the quality of people’s lives, from 0 to 10. The average was taken from over 2015-2017, with 156 countries taking part.

The scores were calculated against a hypothetical country called Dystopia, which holds the lowest national averages for 2015-2017. Explanations for the levels of happiness per country were broken down into the following areas:

  • GDP per capita
  • Social support
  • Healthy life expectancy
  • Freedom to make life choices
  • Generosity
  • Perceptions of corruption

But what contributes to this happiness? Is there a correlation between less income tax and happiness, for example, as we lose less of our hard-earned wage?

Tilly Bailey & Irvine Law Firm, who are expert medical negligence claims handlers, explore the matter further.

The lowest income-taxed countries

First, we take a look at the lowest income-taxed countries. According to this report, which excludes oil-rich nations, the lowest income tax rates are enjoyed by:

  1. Cayman Islands — 0% domestic tax.
  2. The Bahamas — 0% income tax rate.
  3. Guatemala — 7% individual tax rate, 25% corporate tax rate.
  4. Bulgaria — flat 10% tax on all personal income.
  5. Bolivia — flat 13% income tax rate (but tax on luxury items varies, plus 13% VAT).
  6. Lithuania — flat 15% on all individual income.
  7. Romania — 16% income tax rate and corporate tax rate.
  8. Ukraine — 18% income tax rate.
  9. Singapore — operates a sliding scale. 22% on income over S$320,000 (£177,903); below S$22,000 (£12,230) is 0%. Corporate tax rate is 17%.
  10. Latvia — 23% individual tax rate. Corporation tax rate is 15%.

So, where do these countries land in the World Happiness Report? In the report of 156 countries, we placed the benchmark at 50th place — anything above 50th place would be deemed “happy” and anything below 50th place would be deemed “unhappy” in comparison.

The Cayman Islands and Bahamas did not have data in the report, sadly. Guatemala came 30th, Bulgaria 100th, Bolivia 66th, Lithuania 50th, Romania 52nd, Ukraine 138th, Singapore 34th, and Latvia 53rd.

The highest income-taxed countries

Now, let’s compare this to the highest income-taxed countries. Nomad Capitalist named 15 high-tax countries: Germany, Ireland, Greece, Italy, Slovenia, Israel, France, Finland, the Netherlands, Belgium, Austria, Denmark, Japan, Portugal, and Sweden. Sweden has an income tax rate as high as 57.1%.

The article suggests that people should look to other places when it comes to moving abroad, with the author Andrew Henderson stating: “I would advise you to think twice when it comes to being a resident of one of these countries […] pick a place that treats you best.”

This would seemingly support the idea of a higher tax rate resulting in a lower level of happiness. Again, with 50th place as our benchmark, let’s see where these high-tax countries landed on the World Happiness Report:

  • Germany – 15th
  • Ireland – 14th
  • Greece – 79th
  • Italy – 47th
  • Slovenia – 51st
  • Israel – 11th
  • France – 23rd
  • Finland – 1st
  • The Netherlands – 6th
  • Belgium – 16th
  • Austria – 12th
  • Denmark – 3rd
  • Japan – 54th
  • Portugal – 77th
  • Sweden – 9th

So, despite the higher tax rates of these countries, only four have landed under the 50th place bench-mark. In fact, four appear in the top ten happiest countries. None of the lower-tax rate countries broke into the top ten, in contrast.

The Guardian looked into the higher tax rates of Sweden, and noted that the use of higher tax afforded the country numerous benefits: affordable childcare, joint parental leave of 480 days, pensions, and unemployment support of 80% of your previous salary for the first 200 days.

Where did the UK place, you ask? Well, the World Happiness Report places the United Kingdom at 19th. Turns out, we’re a pretty happy country too!

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