Our analysis indicates that high marginal tax rates may diminish economic activity and weaken public finances in Finland. The existing literature credibly demonstrates that, particularly among highly productive workers, the distortive effects of taxation are more pronounced, impeding both career progression and intangible investments. Supporting research and development (R&D) activities can partially offset the adverse effects of stringent taxation. However, the innovation system should be optimized to effectively internalize the externalities associated with innovations.
