A man waves a flag to honour of the Kingdom of Sweden. Reuters

The fabled good life enjoyed in Scandinavian countries thanks to high taxes and social equality has actually fostered welfare dependency and fuelled the fires of far-right extremism.

A new report titled Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism exposes myths about higher taxes and increased welfare spending leading to better social and economic outcomes.

In fact many desirable aspects of Scandinavian societies, such as low income inequality, low levels of poverty and high economic growth pre-dated the development of a generous welfare state.

The explosion of taxation in the region over the 30 years from 1960 had a damaging effect on business and job creation.

As such, there could be lessons to learn for a brave new Scotland, which tends to aspire to its Nordic neighbours.

Nima Sanandaji, the author of the report, told IBTimes UK that in places like Denmark the Social Democrats have called for reforms of the welfare state.

"There is a need to increase competition because what has been removed is the incentive to work. Things were more successful when there were limited taxes.

"When countries like Sweden first created a welfare state, they had 25% tax from GDP, but when taxes became much higher they ran into problems. People have now adjusted to taxes and benefits. There is a warning here for Scotland."

Sanandaji explained that the development of the welfare state has eroded opportunities for migrants. Even the most qualified immigrants struggle to find suitable jobs in Scandinavian countries thanks to taxes and regulations.

He said that before it had high taxes Sweden was very good at integrating foreigners.

But today highly educated immigrants in Finland and Sweden have an unemployment rate over 8% higher than native born Finns and Swedes of similar educational background.

To be clear, the problem of falling into the benefits trap is a general one and particular to workers from abroad, but it has created resentment from far-right groups.

There has been a huge surge in anti-immigration parties in Sweden, which have their roots in Neo-Nazi idealism, and this trend can be seen across all the Nordic region.

Unemployment rates may appear to be low in Scandinavian countries. But what you have is "hidden unemployment", said Sanandaji.

He said a great many people, young and old, are classed as "disabled" and as such are not counted as unemployed.

"If you say you are depressed, they will put you on sick leave. If you say you can't get a job, and you are depressed, you are classed as disabled.

"This works as push and pull. The state pushes people towards this rather than being on the unemployed list. People get more money on disabilities so there is a pull factor towards that sort of benefit trap."

Sanandaji said people in Norway people can be placed on a form of early retirement even if they are young – apparently this describes one out of every twenty 18-to 29-year-olds.

He said it's hard to exactly differentiate what this means – basically it amounts to some sort of disability.

"A million Swedes don't work thanks to early retirement, sick leave and unemployment. If you factored all this in the unemployment rate would translate to something like 20%."

IBTimes UK contacted the Scottish National Party (SNP) to get their views on the findings and received the following statement from Stephen Gethins MP, SNP European Affairs spokesperson:

"The SNP is ambitious for Scotland – we look at models that could improve the quality of life for the people of Scotland, and there is no doubt that some aspects of the Nordic models have things from which we can learn.

"The model currently presented by Westminster is one of massive welfare cuts with inequality and food bank use at a record high.

"Perhaps it is not a surprise, then, that the SNP received an overwhelming mandate from the people of Scotland in May to help create a fairer, more prosperous society away from Westminster's agenda of cuts – cuts and more cuts."