Comment by expazl | Hacker News Reader

Comment by expazl | Hacker News Reader

> THE FAROES ARE ONE OF THE RICHEST COUNTRIES in the world by per capita GDP—even slightly richer than Denmark itself.

The Faroe Islands are a strange place. There aren't many people, yet you'll see huge infrastructure projects to literally drill tunnels through mountains to connect at 2-3 families with the main roads. A gigantic amount of public money gets pumped into every part of their industry and infrastructure, funded by Denmark.

On a completely unrelated note, the the wife of the previous prime minister is from the Faroe Islands, and he has been known for being bad at separating private and public interests, and for cases of pumping money into specific monopolistic fishermens pockets while taking huge donations from the same to his own funds. The two of them also own a company that plans tours from Denmark to the Faroe Islands.

He's no longer prime minister but managed to create a central party that was key in establishing the current government. I'm sure we'll see a continuation of pumping money into the Faroe Islands.

All that said, it's a lovely place to visit, especially for people who enjoy hiking and don't mind damp weather, and there's some cool places to see puffins.

I think the Faroes being a country with high levels of evenly-distributed wealth and a profitable but not-very-diverse business sector is why they get the luxury of having a simple tax system with limited pressure to add deductions (that and taxes not actually needing to be high enough to cover government spending). Certainly the wealth is more a cause of the tax simplicity than the other way round.

Back of the math envelope suggests the overheads of running their system aren't that low either (the 70m krone budget serves a population of just 54000 people). The IRS budget is closer to $14bn a year, but it serves around 330m people, and nobody accuses the US of being a model of efficiency.

They're subsidized by Denmark. They wouldn't be able to support their infrastructure projects without outside money.

About the budgets. Certainly the cost of this kind of systems scales sub-linearly with population size?

Not sure there are massive economies of scale in tax collection (and probably some diseconomies of scale too from scaling up from the Faroe Islands to a region/nation too big for a single official to know every accountant personally!). Auditing and providing specific advice on compliance is pretty hands on stuff, and as the population size grows, so does the size, variety and geographical dispersal of the entities being taxed, the range of possible avoidance measures, the complexity of legal actions etc. And inevitably, the complexity of the tax code...

Software systems generally benefit from economies of scale. So do financial institutions. Their tax system is simple enough to be automated to a larger extent than the IRS.

Not sure why this would be controversial at all. You're basically arguing that the more complex system of the IRS is 10x more efficient (population/budget) at 1000x the scale, but that the efficiency is unrelated to economies of scale. It just makes no sense to me. Would the costs go down if the Faroe islands adopted the American tax system?

I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger considering it handles a lot more complexity and it's seldom regarded as an efficient organization. It's also fairly uncontroversial that labour intensive stuff like auditing businesses and running helpdesks doesn't benefit from particularly significant economies of scale (you spread some software maintenance costs but as you necessarily massively scale up your workforce you acquire inefficiencies from diffusion of knowledge and accountability across a larger, more unwieldy organization and increased management overhead).

> I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger

According to the numbers mentioned above the per head spend of IRS is 3-5x smaller than the Faroe island equivalent. (Taking into account the currency difference.)

That despite the IRS handling a much more complex system.

How do you explain that?

I think I read that they are planning to start lowering the financial support from Denmark this year. But only by a small bit. With no concrete plan of weaning fully of it. So the end of the union still is far off it seems. As long as Greenland wants support they should get it, as they really need it, but the Faroe Islands should have been on-track for independence a long time ago imo.

> As long as Greenland wants support they should get it, as they really need it

What is the reasoning there?

Greenland is a massive untapped mineral resource and important geostrategic asset that Denmark owns and having a few small-ish settlements there costing them very little money helps maintain sovereignty.

https://www.nytimes.com/2021/10/01/business/greenland-minera...

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