Executive Summary

Credible, transparent governance
Democracy functions well, and governance is credible and transparent in Denmark. Public trust in government and public administration is high. Comparatively, Denmark is extraordinary for its relatively strong economic performance (e.g., as measured by per capita income), but also for its relatively equal distribution of income and low poverty rates. The Danish welfare state is extensive both in terms of service provision and the social safety net. Though this translates into a high tax share. Overall, Denmark has shown that it is possible to combine an extensive welfare state with a well-functioning economy.
The economy has performed well in recent years with activity and employment close to capacity. The recent debate on labor shortages and overheating has faded, and current projections predict a steadying of development with moderate growth rates and unemployment close to its structural level. Key macroeconomic indicators are favorable and performing comparatively well. The labor market integration of immigrants and the provision of welfare services (e.g., education, social care and healthcare) remain crucial challenges, and the implications of more ambitious climate policies are widely discussed.
Succession of strong reform agendas
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. Higher labor supply and 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. The reforms should ensure the fiscal sustainability of current welfare arrangements. Denmark is among the frontrunners in terms of addressing the challenges to fiscal sustainability arising from an aging population. Lately, climate change policy has moved up the political agenda and all parties – except the small New Right, which entered the parliament following the June 2019 election – now support the goal of reducing greenhouse gas emissions by 70% by 2030 relative to 1990 levels.
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.
reforms a focus
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.
Service standards
falling behind
Second, the public sector (mainly municipalities) has experienced increased strain in relation to service provision. Many citizens have found that standards lag behind their expectations, but tight finances have made it difficult to improve services. Though the new Social Democratic government, which has held power since June 2019, has found sufficient budget slack to transfer more money to the municipalities and regions.
Integration remains controversial
Third, immigration and the integration of immigrants remains controversial. The general trend, which has broad parliamentary support, has been toward stricter immigration rules and further tightening was considered by the previous government. Moreover, the social assistance scheme has been changed, including the residence and employment requirements, and the cap on total support, which particularly affects migrants from low-income countries outside Europe.
Military role
Finally, Denmark’s engagement in international politics remains a disputed issue. This debate applies to foreign policy in general, and military operations in Afghanistan and Iraq in particular. As these earlier military operations were being phased out, Denmark joined the international coalition against the so-called Islamic State (IS) in Iraq and Syria. 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.
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