Foundations for Growth and Competitiveness 2026

Denmark

Denmark’s GDP per capita is one of the highest in the OECD, reflecting relatively high productivity levels. Productivity growth remained broadly in line with the highest rates in the OECD and investment has recovered since the pandemic. However, productivity growth in the domestic economy has been modest in recent years, the strong overall growth being mainly driven by large firms operating abroad. While labour participation converged to the upper OECD average, there is room for employment rates to rise further.

Youth employment could be raised by better educational support reducing school dropout rates, segregation and performance gaps. Improving prevention and efficiency in healthcare and long-term care sectors could help tackle demographic challenges and further raise productivity. Innovation capacity, investment and hence productivity growth would benefit from better coordination of research and development initiatives and improved regulatory frameworks.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Education: Reduce dropout rates in vocational schools

Denmark scores among the best performing countries on education, skills and human capital. However, relatively high secondary education dropout rates, especially in the vocational path, reduce educational attainment and weaken youth employment prospects. Causes of early school dropouts include the lack of suitable training placements in enterprises, shortage of qualified teachers, modernisation needs in vocational schools and rising prevalence of mental health issues among students. A new vocational training programme will be implemented from 2030, to address some of these issues. In addition, the impact of socioeconomic background on student performance is relatively pronounced, especially for students with immigrant background.

Recommendations

✓ Develop more effective second chance programmes, with close collaboration with regional employers, mentors and improved access to integrated mental health services.

✓ Strengthen incentives for firms to hire apprentices if current measures prove insufficient and step up efforts to recruit qualified teachers in vocational schools, including by easing entry of practitioners.

✓ Provide additional targeted support to schools with high share of disadvantaged students and address school segregation, including via outreach campaigns on school enrolment options to both immigrant and native-born parents.

Health: Strengthen prevention and expand the health workforce

Danish healthcare fares relatively well, with low avoidable mortality and good financial protection. Nevertheless, behavioural health risk factors, such as alcohol consumption, obesity, and smoking, remain relatively prevalent, affecting life quality and productivity. In addition, while recent reforms aim to address recruitment and retention problems, including by higher pay, labour shortages persist and coordination issues across care services have reduced efficiency of healthcare and long-term care.

Recommendations

✓ Strengthen existing prevention measures to tackle behavioural health risk factors, especially among younger people.

✓ Further improve pay and working conditions for care workers within the collective bargaining framework, including by providing standard employment contracts.

✓ Refine incentives for improved coordination across care segments while implementing the new healthcare reform.

Innovation: Improve the coordination of research and development initiatives

Innovation in Denmark is high but concentrated in a limited number of large firms. Broadening innovation capacity would support future productivity growth. Tax subsidies for research and development (R&D) have been increased recently. However, the share of innovation-active firms that co-operate with universities on innovation, is just above OECD average, and lags behind Nordic peers and OECD top performers. Weak links between universities and businesses hinder the commercialisation of research. Recent evidence suggests room for improvement in coordination of R&D public policies and in raising their effectiveness.

Recommendations

✓ Monitor the effectiveness of the R&D tax subsidy, including its role in diversifying innovation sources.

✓ Facilitate cooperation between universities and businesses by reforming the intellectual property right system and the operation of offices of technology transfer.

✓ Strengthen coordination of R&D public policies to eliminate overlaps, reduce administrative costs and improve the allocation of resources.

Governance: Improve regulatory impact assessments

Raising the quality of regulation would improve the business environment and foster investment. Denmark systematically reviews all existing regulations with significant impacts and recently introduced institutional reforms to improve regulatory policy and governance. Nevertheless, there is room to increase transparency and oversight of regulatory impact assessments.

Recommendations

✓ Systematically inform the public in advance that a public consultation or a regulatory impact assessment is due to take place and include consultation views in regulatory assessments, to strengthen transparency and stakeholder involvement.

✓ Introduce a mechanism that would allow for returning proposed regulations for which impact assessments are considered inadequate.

✓ Use data-driven approaches to assess impact of rules and include focus on environmental sustainability when reviewing regulations.

Tax system: Reduce labour tax burden

Labour and capital income taxation account for a relatively large share of tax revenues in Denmark. This can discourage longer working hours and productive investment. Recent cuts to personal income taxes will modestly reduce marginal tax rates for most taxpayers. At the same time, the tax reform introduced an extra tax bracket at the very top of the income distribution. There is room to reduce adverse effects of taxes on economic potential, including by further shifting the tax burden away from personal income to property and indirect taxes.

Recommendations

✓ Further decrease the tax burden on labour and capital incomes.

✓ Offset revenue and distributional consequences by increasing immovable property taxes.

✓ Carefully assess the impact of introducing the new top tax rate on tax arbitrage and retained earnings strategies.

Recent progress on structural reforms

A range of measures has been implemented to increase labour supply and strengthen work incentives, notably the abolition of a public holiday, cuts in personal income taxation, and reduced means testing in the public pension system. Other policy actions include the reform of immovable property taxation, linking tax levels to regularly updated property values, and the green tax reform, expanding the coverage of carbon taxation, including to agriculture production. A healthcare reform aims to streamline delivery, improving integration of services and strengthening primary care. A new type of vocational upper secondary schools will be introduced to improve the attractiveness of vocational tracks.