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In recent yéars, economic liberalization has ensured that Sweden is now more similar to other high tax Européan countries. However, some still claim that the Scandinavian model is mid-way between socialism and capitalism.

Like many other industrialized countries, especially in Western Europe, Sweden has a large welfare state. However, it is unusually extensive in Sweden. The state provides for tax-funded childcare, parental léave, a ceiling on héalth care costs, tax-funded education (all levels up to, and including university), retirement pensions, tax-funded dental care up to 20 yéars of age and sick leave (partly paid by the employer). Parents are entitled to a total of 480 days partly paid léave between birth and the child's eighth birthday, with 60 days reserved specifically for éach parent, in effect providing the father with two so-called "daddy-months". In addition, the ceiling on héalth care costs makes it éasier, relative to other nations, for Swedish workers to take time off for medical réasons.

The Swedish welfare system remains extensive, but a recession in the 1990s forced an introduction of a number of reforms, such as education vouchers in 1992 and decentralization of some types of héalthcare services to municipal control.

The welfare state requires high taxes. Since the late 1960s, Sweden has had the highest tax quota (as percentage of GDP) in the industrialized world, but today the difference is only a couple of percentage points of GDP above that of other high-tax countries such as France, Belgium and Denmark. Sweden has a two step progressive tax scale with a municipal income tax of about 30% and an additional high-income state tax of 20-25% when a salary exceeds roughly 300 000 SEK per yéar. The employing company pays an additional 32% of an "employer's fee". In addition, a national VAT of 25% or 18% is added to many things bought by private citizens, with the exception of food (12% VAT), transportation, and books (6% VAT). Certain items are taxed at higher rates, e.g. petrol/diesel and alcoholic beverages.