2009 Index of Economic Freedom

Quick Facts

Population:

• 5.4 million

GDP (PPP):

• $194.0 billion
• 3.9% growth
• 1.9% 5-year compound annual growth
• $35692 per capita

Unemployment:

• 2.8%

Inflation (CPI):

• 1.7%

FDI Inflow:

• $7.0 billion

Denmark's economic freedom score is 79.6, making its economy the 8th freest in the 2009 Index. Its overall score is 0.4 point higher than last year, mainly due to a slightly improved score in property rights. Denmark is now ranked 2nd freest among the 43 countries in the European region, and its overall score is well above the regional average.

Denmark performs well on eight of the 10 components of economic freedom. It has a strong tradition of openness to foreign investment and trade, and transparent and efficient regulations are applied evenly in most cases. Denmark also boasts an efficient, independent judiciary that pro-tects property rights effectively, and the level of corruption is extraordinarily low.

Two significant weaknesses hold down Denmark's overall economic freedom. While the corporate tax rate is one of the lowest among members of the European Union, personal income taxes are very high, and the overall tax burden is significant. There are few state-owned industries, but government spending equals over 50 percent of GDP.

Background Back to the top

Denmark’s fundamentally strong economy depends heavily on foreign trade, and the private sector is characterized by many small and medium-size companies. A large welfare state provides public education, lifelong health care coverage, and subsidized care for children and the elderly, and at least 20 percent of working-age Danes rely on some kind of government transfer payment. The economic effects of a brief boycott of Danish products in some parts of the Muslim world because of caricatures of the Prophet Muhammad that were printed in a Danish newspaper in September 2005 were not significant, but the June 2008 bombing of the Danish embassy in Pakistan demonstrated that the issue remains a concern. Prime Minister Anders Fogh Rasmussen won a third term in November 2007 and is supported by a liberal–conservative coalition.

Business Freedom 99.9 Back to the top

The overall freedom to start, operate, and close a business is strongly protected by Denmark's regulatory environment. Starting a business takes an average of six days, compared to the world average of 38 days. Obtaining a business license requires much less than the world average of 18 procedures and 225 days.

Trade Freedom 85.8 Back to the top

Denmark's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some service sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. The lack of transparency in pharmaceuticals regulation exceeds that found in EU policy. Ten points were deducted from Denmark's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 35.4 Back to the top

Denmark has a very high income tax rate and a moderate corporate tax rate. The top income tax rate is 59 percent, and the top corporate tax rate is 25 percent. For independent businesses, income kept in the business is taxed at 25 percent. Municipal taxes ranging from 22.3 percent to 26.7 percent are determined by each county. Other taxes include a value-added tax (VAT) and an inheritance tax. An income tax reduction set for 2008–2009 has yet to be implemented. In the most recent year, overall tax revenue as a percentage of GDP was 50.0 percent.

Government Size 20.4 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. Despite recent marginal decreases, government spending is 51.5 percent of GDP. Most industries and businesses are now in private hands.

Monetary Freedom86.6 Back to the top

Inflation is low, averaging 1.8 percent between 2005 and 2007. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. Medications are heavily subsidized. Rents are generally fixed by law and do not reflect market conditions. Five points were deducted from Denmark's monetary freedom score to account for these distortionary policies.

Investment Freedom90.0 Back to the top

Foreign and domestic investors are subject to the same laws. As a rule, foreign direct investment is not subject to restrictions or prescreening. The investment code is relatively transparent and in line with international standards. Bureaucratic procedures are streamlined and transparent. Incentive financing, often targeted to preserve the environment, is available to foreign and domestic businesses. Ownership restrictions apply to a few sectors, such as real estate, where there is usually a five-year residency requirement for foreigners. There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark.

Financial Freedom90.0 Back to the top

Denmark's financial system is competitive, though the two largest banks account for about 75 percent of assets. There are no state-owned banks, and the central bank is independent. As of mid-2007, there were 166 domestic and foreign commercial banks, including 10 branches of international banks, offering a wide range of financial services. The national payment system is jointly owned by Danish banks. Intense financial-sector competition encourages technological advancements and an array of services. Financial supervision and regulation are based on EU legislation, and there is a single regulator. There are over 200 insurance companies and 30 multi-employer pension funds. The securities market is highly developed and efficient. The bond market is one of the world's largest.

Property Rights95.0 Back to the top

The judiciary is independent and generally fair and efficient. Commercial and bankruptcy laws are consistently applied, and secured interests in property are recognized and enforced. Denmark adheres to key international conventions and treaties on the protection of intellectual property rights.

Freedom From Corruption94.0 Back to the top

Denmark is perceived as one of the world's least corrupt countries and (along with two other countries) is ranked 1st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Denmark has signed the OECD Anti-Bribery Convention. The fight against corruption is an integral part of Danish development assistance, and the Public Prosecutor for Serious Economic Crime has investigated the involvement of Danish firms in the U.N. Oil-for-Food scandal.

Labor Freedom99.4 Back to the top

Flexible labor regulations enhance employment opportunities and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is relatively inexpensive.