2009 Index of Economic Freedom

Quick Facts

Population:

• 9.1 million

GDP (PPP):

• $310.6 billion
• 4.1% growth
• 3.2% 5-year compound annual growth
• $34193 per capita

Unemployment:

• 6.1%

Inflation (CPI):

• 1.7%

FDI Inflow:

• $27.2 billion

Sweden's economic freedom score is 70.5, making its economy the 26th freest in the 2009 Index. Its score is slightly worse than last year, reflecting declines in three of the 10 economic freedoms, primarily labor freedom. Sweden is ranked 14th out of 43 countries in the Europe region, and its overall score is above the world and regional averages.

Sweden benefits from extremely high levels of business freedom, property rights, and freedom from corruption. With its economy open to global trade and investment, Sweden also scores well in trade freedom, investment freedom, monetary freedom, and financial freedom. The overall regulatory environment is simple and transparent, facilitating robust entrepreneurial activity. The financial sector is highly developed, and monetary stability is well maintained. The judiciary, independent and free of corruption, has demonstrated an exemplary ability to protect property rights.

However, Sweden has some of the lowest scores worldwide in fiscal freedom and government size. The wealth tax has been abolished, but taxes are still a huge burden. The top income tax rate of 57 percent is one of the highest in the world. Total government spending is still more than half of GDP. The labor market's inflexible regulations have caused the labor freedom score to dip below the world average.

Background Back to the top

Sweden has enjoyed a buoyant economy since becoming a member of the European Union in 1995. However, it rejected adoption of the euro by popular referendum in 2003. Sweden relies heavily on international trade, with total trade accounting for more that 50 percent of GDP. The Alliance for Sweden, a center-right coalition headed by Moderate Party leader Fredrik Reinfeldt, unseated the Social Democrat Party of Göran Persson in September 2006 with a pledge to sell state assets, increase growth, and reduce government debt. Sweden’s main exports include paper products, machinery and transport equipment, and chemicals.

Business Freedom 95.9 Back to the top

The overall freedom to conduct a business is strongly protected under Sweden's regulatory environment. Starting a business takes 15 days, compared to the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days. Bankruptcy proceedings are fairly easy and straightforward.

Trade Freedom 85.8 Back to the top

Sweden'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 services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Sanitary and phytosanitary regulations are burdensome, and enforcement of intellectual property rights is problematic. Ten points were deducted from Sweden's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 35.0 Back to the top

Sweden has a very burdensome income tax rate and a moderate corporate tax rate. The top income tax rate is effectively 57 percent (when both national and municipal taxes are taken into account), and the corporate tax rate is 28 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The wealth tax was abolished in January 2007. In the most recent year, overall tax revenue as a percentage of GDP was 49.7 percent.

Government Size 7.3 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 55.6 percent of GDP. Spending has been reduced from over 60 percent of GDP in the 1990s but is still at one of the highest rates among OECD member countries. Public debt has fallen below 40 percent of GDP.

Monetary Freedom82.1 Back to the top

Inflation is low, averaging 1.6 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. Prices are generally set by the market, but oligopolies may hinder competition, and the government influences prices through regulations and state-owned enterprises and utilities. Ten points were deducted from Sweden's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom80.0 Back to the top

Foreign companies may invest in most sectors in Sweden. Government monopolies are maintained in the retail sales of pharmaceuticals and alcoholic beverages. In general, investment laws and the bureaucracy are efficient. A complex network of permits and licenses applies to domestic and foreign firms, and labor and environmental regulations add to the cost of investment. Residents and non-residents may hold foreign exchange accounts. There are no controls on payments and transfers or repatriation of profits. The purchase of real estate by non-residents may require a permit.

Financial Freedom80.0 Back to the top

Regulation of the financial system is transparent and largely consistent with international norms. Banks offer a full range of financial services. Foreign and domestic investors have adequate access to capital, and the private sector enjoys access to a wide variety of credit instruments. Nearly all commercial banks are privately owned and operated, and credit is allocated on market terms. Banking is highly concentrated, with four banks accounting for over 80 percent of assets. Foreign insurers are well represented in the insurance sector. The Stockholm Stock Exchange is modern, active, and open to domestic and foreign investment.

Property Rights90.0 Back to the top

The judiciary is independent and fair. Contracts are respected, and Swedish law generally provides adequate protection for all property rights, including the right to intellectual property. As a member of the European Union, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.

Freedom From Corruption93.0 Back to the top

Corruption is perceived as almost nonexistent. Sweden ranks 4th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Comprehensive laws on corruption are fully implemented, and Sweden has ratified the 1997 OECD Anti-bribery Convention. The constitution and law provide for public access to government information.

Labor Freedom55.5 Back to the top

Sweden's rigid labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly and burdensome.