Headlines 2015

Overestimate of gains in tax-financed services

2015-11-30


A report published by Swedish Entrepreneurship Forum with Henrik Jordahl, IFN, and Karin Edmark, Stockholm University and affiliated to IFN, as co-authors shows that seven out of ten Swedes want to limit the distribution of profits in the service sector. At the same time an equally large majority of Swedes believe that freedom of choice is important. In addition, the report indicates that the profit motive is an important driver for competition and innovation and that public opinion against profits in tax-financed services partly is based on misconceptions about the size of profits. On average, Swedes overestimate the profit margins by more than 400 percent.

The report Swedish Economic Forum Report: Profits, social services and entrepreneurship was presented on November 26, at a seminar organized by Entrepreneurship Forum.

In the report Henrik Jordahl writes about change in the public debate in regards to limitations for distribution of profit. He states that "the resistance [against profit in tax-financed services] has slackened as the profit-making companies have attracted consumers and increased their market shares. But the companies have not managed to get rid of the fear that the profit distribution will outflank the quality in the service sector."

Jordahl explains that the operating margins of private companies in the service sector average five percent, which besides of return must cover reinvestment, interest and tax. The study shows that Swedes on average estimate operating margin of privately held companies in tax-financed services to 26 percent. One in four Swedes believes that operating margin is 40 percent or higher. "These misconceptions partly explain why plans to limit profit distribution, for companies in the service sector, have such strong support."

 

2015-11-27 Karin Edmark.jpg

Karin Edmark, Stockholm University and affiliated to IFN.



Karin Edmark examines how the profit motive and the consolidation of the education market affect schools. In the report she discusses two trends: that the number of for-profit schools is growing as well as the number of large school organizations. Her conclusion is that research on these issues is scarce, but suggests that for-profit businesses are as good as any other private company. She writes that "for-profit institutions as such, warrant a particularly strong regulatory framework for control and evaluation of the business as the profit opportunities may attract less reputable actors." She believes that since there are studies showing that schools in general maintain the same quality year after year "it might be wise to scrutinize and supervise specifically start-up schools ..." She believes that in order to facilitate monitoring and evaluation, it is important to addressing the existing grade inflation.


Read the report (in Swedish)

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se