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  • Across Scandinavia, the average price of everything from a knitted roll neck to pastries from the local bakery are some of the highest in the world.

  • Scandinavia is a region in northern Europe that was historically made up of three kingdoms.

  • Norway, Sweden, and Denmark.

  • They're united by their Viking heritage but also their shared reputation as one of the most expensive regions to live and visit.

  • Whether it's buying a car or a TV, consumers in Scandinavia pay some of the highest prices in the world.

  • Even buying groceries is costly with all three countries' food and drink prices above the European average.

  • All three countries also have a standard VAT rate of 25%.

  • Amongst all the European nations, only Hungary has a higher rate.

  • Heading to the bar is also pretty pricey.

  • In Norway, having a beer or glass of wine will cost 2.5 times the EU average.

  • Both Norway and Sweden have state-run monopolies on alcohol which helps keep the prices up.

  • This social market model, rather than a liberal market model like in the U.S., is common across Scandinavia and helps explain why the cost of living is so high.

  • Scandinavian countries have large welfare states with their social expenditures.

  • As a percentage of GDP, among the highest in the world and this requires high levels of taxation.

  • Sweden has a top rate of personal income tax of over 60%.

  • While Denmark's is more than 55%, both of which are well above the OECD average.

  • In Denmark, if you want to buy a car.

  • You have to pay anywhere between 85% and 150% tax on top of the cost of the vehicle.

  • And the taxes don't stop there.

  • Let's say I want to buy a sweater in Denmark.

  • I pay 300 kronor for it, but how much of that money actually goes to the vendor?

  • Well, first there's the 25% VAT - leaving the seller with 240 kronor.

  • The clothes shop also has to pay a minimum 22% of corporate income tax.

  • That means that a big portion of the money I paid for my sweater goes to the Danish government.

  • Not to mention there's a hefty payroll tax on employees' wages.

  • And the store still has to pay for rent, electricity, and cleaning - all of which are taxed, too.

  • These taxes mean that for Scandinavian businesses to make a profit, they need to charge their consumers high prices.

  • For some companies, this has proved too much of a burden for their business model.

  • The world's biggest furniture company IKEA was founded in Sweden but has moved its headquarters to the Netherlands.

  • Through corporate restructuring, the business is now owned by a non-profit Dutch parent company.

  • In part due to the high taxes in Sweden.

  • But according to some experts, Scandinavia's social democrat tendencies have led to a strong social cohesion and has helped provide political stability.

  • This, in turn, has made their economies safe havens for outside investors.

  • Which is one reason why the Danish, Swedish and Norwegian currencies called krona are so strong.

  • This can be tough on tourists with the exchange rate doing them no favors.

  • If the cost of living in Scandinavia is so expensive.

  • Why then are its citizens some of the happiest in the world?

  • In the past five years, Scandinavian countries have regularly topped the World Happiness Report.

  • That's an index that measures overall life satisfaction based on different contributing factors.

  • Some experts attribute these high satisfaction levels with Scandinavia's large welfare state which they say ensures financial security, job security, and economic distribution.

  • In return for high taxes, citizens get free state education, very cheap child care, a functioning public transport and a free health service.

  • But a large and expensive social welfare state doesn't necessarily mean the best.

  • For example, Norway is the only Scandinavian country that ranks in the top 10 for adult education levels, amongst OECD countries.

  • And yet Scandinavians remain happy with the status quo.

  • Living within a social corporatist economy that provides reliable economic welfare.

  • Having a beer at the end of the day does cost a small fortune, but for people living and working in Scandinavia, high prices provide a quality of life that's worth paying for.

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B1 UK sweden scandinavian denmark norway welfare social

Why is Scandinavia so expensive? | CNBC Explains

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    Liang Chen posted on 2019/02/11
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