Denmark

Democracy functions well, and governance is credible and transparent in Denmark. Public trust in government and public administration is high. Comparatively, Denmark stands out for its ability to combine strong economic performance (as measured by per capita income) with a relatively equal distribution of income and low poverty rates. The Danish welfare state is extensive both in terms of its provision of services and social safety net. Though this translates into a high tax share, employment rates are high. Overall, Denmark has shown that it is possible to combine an extensive welfare state with a well-functioning economy.

The economy has performed very well in recent years. The COVID-19 pandemic triggered an unprecedented decline in activity, but this activity has recovered swiftly as restrictions have been lifted. Economic activity now exceeds its pre-pandemic level, and activity and employment are close to capacity. The debate has recently turned to labor shortages and the risk of an overheated economy. While key macroeconomic indicators are favorable, there are challenges including the labor market integration of immigrants, the provision of welfare services (e.g., education, social care and healthcare) to adequate and satisfactory standards, and how to reach ambitious climate policy goals.

In an attempt to strengthen the incentive structure, and boost labor supply and employment, previous governments have had strong reform agendas. These agendas aimed to overhaul the structure and design of the social safety net (e.g., pensions, early retirement, social assistance and disability pensions), labor market policies and the tax system. Increasing the labor supply and achieving higher employment is an objective in itself, but also improves public finances through lower government spending and higher tax revenue. This reform strategy obtained broad support in comparison to alternative strategies involving tax increases or spending cuts. These reforms contribute to ensure the fiscal sustainability of current welfare arrangements, and Denmark is among the frontrunners in terms of addressing the challenges to fiscal sustainability arising from an aging population. However, challenges remain and the focus has shifted toward so-called 2nd generation reforms aimed at boosting employment further without increasing inequality. Lately, climate change policy has moved up the political agenda and there is broad political support for ambitious climate policies.

All of the previously mentioned reforms were based on work by parliamentary commissions, an important policy instrument in a country with a strong consensus tradition that has mostly been governed by minority governments.

The country’s significant strengths notwithstanding, several issues are high on the political agenda. First, Denmark ranks among the top OECD countries with regard to educational expenditure, but scores lower on various indicators of educational performance. Recently, this led to educational reforms that increased curricular demands and improved teacher training.

Second, the public sector (mainly municipalities) has experienced increased strain in relation to the provision of services. Many citizens have found that standards lag behind their expectations, but tight finances have made it difficult to improve services. Nonetheless, the new Social Democratic government, in power since June 2019, has found sufficient budget slack to transfer more money to the municipalities and regions.

Third, immigration and the integration of immigrants remains controversial. The general trend, which has broad parliamentary support, has been toward stricter immigration rules. Moreover, the social assistance scheme has been changed, including the residence and employment requirements, and a cap on total support, which particularly affects migrants from low-income countries outside Europe. This issue has gained in importance and there is currently a discussion about how to attract labor.

Finally, Denmark’s engagement in international politics remains a disputed issue. The country’s position vis-à-vis the European Union also remains a contested issue. It is an implicit political arrangement that all essential EU decisions are put to a referendum.