finland - welfare state - economic indicators

8/2/2019 Finland - Welfare State - Economic Indicators

http://slidepdf.com/reader/full/finland-welfare-state-economic-indicators 1/6

To what extent is Finland’s operation as a welfare state reflected in its macroeconomic indicators?

To what extent is Finland’s operation as a welfarestate reflected in its macroeconomic indicators?

Unit 2 Research Essay

By: Vincent Wang

Wordcount: 1,089




Data

Finland is a highly developed nation, ranked 22nd in the world by the Human Development Index, a

multifactorial measure of quality of living by the UNDP.

GDP stands for Gross Domestic Product. It is ameasure of the income of a country. Since

income is equal to total expenditure ($x spent

by one party is $x earned by others), GDP is

given by the sum of consumer and government

expenditure, investment, and money flow from

international trade from the difference between

export and import revenue. GDP per capita is a

measure of income per person in an economy’s

population, a reflection of the earning power of

each individual. GDP and GDP growth are

macroeconomic indicators, and to maximisethem is a governmental aim. Finland’s nominal

GDP in 2010 was €181.8bn, while real, inflation

adjusted GDP was €177.7bn. GDP per capita

stood at €33,200 in the same time, compared to

€22,950 in Europe on average.

Government Expenditure, part of GDP, is how

the government invests its revenue in its people.

The revenue, gained mainly through taxation, is

spent on merit and public goods, such as

healthcare, education, and transportation. Meritgoods are underproduced private goods with

positive externalities. Public goods are non-

rivalrous and non-excludable goods that the free

market is unwilling to produce. The adequate

production of both types of goods requires

government spending, in the form of subsidies

or outright production. Government spending of

this revenue accounted for 55.5% of total GDP in

2010, a slight drop from 56.1% in 2009.

Figure c: Real GDP = Nominal GDP - Inflation

3%

29%

68%

Finnish GDP 2011 -

Composition by sector

Primary

Secondary

Tertiary

Figure a

Figure b: seasonally adjusted GDP data removes the influence of

regular fluctuations in data

Figure d: Y, X, C and I, of {GDP (Y) = C + I + G + (X – M)} Gross fixed

capital formation is acquisition of durable capital, i.e. goods used in the

production of other goods that are not destroyed with use, e.g., a




Tax is the main source of government revenue: in 2009, tax accounted for 95% of total government

revenue, and was equivalent to 53.4% of GDP. In Finland, income tax is progressive, meaning those

with higher incomes are taxed heavier percentages of their income, in addition to a fixed tax rate for

all income bands at 16% for municipal, church, and health insurance contributions. Income tax varies

between 6.5%-30%. Capital income (i.e. income from investment) is 28% paid to the State.

13% 3%3%

9%

0%1%

14%

2%

12%

43%

General Government Expenditure 2010 in Finland by

Function

General Public Services

Defence

Public Order and Safety

Economic affairs

Environmental Protection

Housing and Community Amenities

Health

Recreation, Culture and Religion

Education

Social protection

Figure e

Figure f




The remainder of government revenue originates from state-owned companies. These companies

compete alongside private firms in a mixed economy, with the exception of some state monopolies,

such as Aiko and Alta, which collectively form the alcohol production and retail industry.

Inflation is a rise in prices in an economy. Inflation in Finland is measured through price change in a

Consumer Price Index consisting of a price-weighted basket of goods. Each month, government

takes the prices of 50,000 goods to calculate a monthly inflation rate based on their average

increase. The base year used to calculate inflation changes every 5 year interval, 2010 being the

latest base. The average inflation rate over 2011 was 3.4%. Finland’s average inflation rate is low

compared to that of Europe as a whole, estimated in 2010 to be 1.22% vs. 2.66%.

Figure g: Finnish state owned companies

Figure i: Finland’s inflation over time




Unemployment in Finland in the 4th Quarter

of 2011 stood at 7.4%. This was an

improvement over the corresponding

quarter in previous years, unemployment

being 8.2% in 2009 Q4 and 8.4% in 2010 Q4.While the number of employed persons fell

by 0.4% in 2010, due to factors such as

retirement, incarceration, or death, the

labour-hour total increased by 1.1%,

reflecting a net increase in productivity.

1.36% of Finland’s population is estimated

to be in long-term, possibly structural

employment, which is successful in

comparison with the long-term

unemployment in the whole of Europe at

2.6%.

Analysis

From figures e, f, g, and j, we derive the following welfare state characteristics respectively: high

government expenditure on transfer payments, high tax rates relative to income, large quantity of

state services, and high employment in said services. Finland is a welfare state and a successful one

when compared to the rest of Europe, outperforming its neighbours in terms of GDP per capita,

inflation and unemployment.

Finland’s GDP and employment come heavily from the tertiary sector ( fig a, j ), which is characteristic

of an economically developed and competitive state. This, however, is not an effect of welfare

policies but a precedent. While not all economically successful states are welfare states, most

welfare states are economically strong; in order for a state to be a welfare state it must typically

have the developed infrastructure and excess capacity at hand in order to provide for its people.

The deconstruction of GDP in fig d reveals a miniscule proportion of private consumption and

investment in comparison to GDP as a whole. This is a telling consequence of the unification of a

high tax environment ( fig f ) and passive economic appetites bred by a welfare state. Investment tax

33%

Finnish Labour Force - By

Occupation

Agriculture and Forestry

Inudustry

Construction

Commerce

Finance, Insurance, and

Business services

Transport and Communications

Public Services

Figure j

Figure k: Unemployment




stands at 28%, which is a massive disincentive for investment, while income taxes that swallow

nearly half of all income leave little room for disposable income.

In the light of the 2008 financial crisis, one notes that GDP growth and employment were both

negatively affected ( fig c, k ). GDP growth suffered slightly more than it did during the Finnish

banking crisis of the 1990’s. Unemployment suffered to a smaller extent . Inflation fell alongsidegrowth ( fig i ), which is natural, given that periods of low growth herald low incomes and thus low

spending, diminishing aggregate demand, causing a general fall in prices. Government could not

prevent an increase in unemployment that set a continually improving record of unemployment

back 10 years, and could not prevent a general decrease in prices despite their power as price

setters in their enterprises, evidencing the impotence of Finland’s welfare state practices in

controlling inflation and unemployment, which are two macroeconomic indicators that ultimately

affect the quality of living and self-sufficiency of the people.

In evaluation, while Finland’s macroeconomic indicators reflect its own characteristics as a welfare

state - i.e. Finland’s policies have influence in some dimension over the indicators - in times of crisis

or otherwise, Finland’s welfare policies are ultimately incapable of controlling these indicators, and

in answer to the question, Finland’s operation as a welfare state is reflected in its macroeconomic

indicators insofar as they affect but do not determine them.

Bibliography

Finland. Ministry of Finance. Budget Review 2012. Government of Finland, Oct. 2011. Web. 5 Feb. 2012.

<http://www.vm.fi/vm/en/04_publications_and_documents/01_publications/01_budgets/20111005Budget/Budg

et_review_2012_enkku_netti.pdf>.

"Finland - Regulatory Reform: Marketisation of Government Services – State-owned

Enterprises." Http://www.oecd.org. 2003. Web. 5 Feb. 2012.

<http://www.oecd.org/dataoecd/49/60/15360260.pdf>.

"Tax Rates Finland." Nordisk ETax. Norden. Web. 03 Feb. 2012.

<https://www.nordisketax.net/main.asp?url=/files/suo/eng/i07.asp>.

"CIA - The World Factbook." Welcome to the CIA Web Site — Central Intelligence Agency. Central Intelligence

Agency. Web. 03 Feb. 2012. <https://www.cia.gov/library/publications/the-world-factbook/geos/fi.html>.

Official Statistics of Finland (OSF): Annual national accounts [e-publication].ISSN=1798-0623. 2010, 1. Gross domestic product grew by 3.1 per cent in 2010 . Helsinki: Statistics Finland

[referred: 3.2.2012].Access method: http://www.stat.fi/til/vtp/2010/vtp_2010_2011-03-01_kat_001_en.html.

Official Statistics of Finland (OSF): General government expenditure by function [e-publication].

ISSN=1798-0828. 2010. Helsinki: Statistics Finland [referred: 4.2.2012].

Access method: http://www.stat.fi/til/jmete/2010/jmete_2010_2012-01-31_tie_001_en.html.

Official Statistics of Finland (OSF): Consumer price index [e-publication].

ISSN=1799-0254. December 2011. Helsinki: Statistics Finland [referred: 3.2.2012].

Access method: http://www.stat.fi/til/khi/2011/12/khi_2011_12_2012-01-13_tie_001_en.html.

"WolframAlpha." Wolfram|Alpha: Computational Knowledge Engine. Wolfram Alpha LLC. Web. 04 Feb. 2012.<http://www.wolframalpha.com/>.

http://www.stat.fi/til/vtp/2010/vtp_2010_2011-03-01_kat_001_en.html



http://www.stat.fi/til/jmete/2010/jmete_2010_2012-01-31_tie_001_en.html



http://www.stat.fi/til/khi/2011/12/khi_2011_12_2012-01-13_tie_001_en.html






finland - welfare state - economic indicators

Documents