2014 Index of Economic Freedom

Czech Republic

overall score72.2
world rank26
Rule of Law

Property Rights70.0

Freedom From Corruption45.3

Limited Government

Government Spending43.8

Fiscal Freedom81.7

Regulatory Efficiency

Business Freedom70.1

Labor Freedom84.0

Monetary Freedom79.4

Open Markets

Trade Freedom87.8

Investment Freedom80.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 10.6 million
  • GDP (PPP):
    • $287.0 billion
    • -1.2% growth
    • 0.3% 5-year compound annual growth
    • $27,191 per capita
  • Unemployment:
    • 7.0%
  • Inflation (CPI):
    • 3.3%
  • FDI Inflow:
    • $10.6 billion
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The Czech Republic’s economic freedom score is 72.2, making its economy the 26th freest in the 2014 Index. Its overall score is 1.3 points better than last year, with notable improvements in half of the 10 economic freedoms, including investment freedom, business freedom, and freedom from corruption. The Czech Republic is ranked 15th out of 43 countries in the Europe region, and its overall score is higher than the regional and global averages.

Over the 20-year history of the Index, the Czech Republic has steadily enhanced its economic freedom to advance to the ranks of “mostly free” economies achieving scores above 70. A series of major reform measures has enabled it to register score improvements of 10 points or more in half of the 10 economic freedoms, including fiscal freedom, labor freedom, and trade freedom. Gains in the area of government size, which measures tax burden and public spending, have also contributed to the Czech Republic’s impressive transition to a market economy.

Facilitated by further improvements in open-market policies, the Czech Republic has recorded its highest economic freedom score ever in the 2014 Index. Continued reform to strengthen the independence of the judiciary and effectively eradicate corruption will be indispensable to ensuring vibrant economic development in the coming years.

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Background

The 1989 Velvet Revolution peacefully overthrew a Communist dictatorship and led to the election of dissident playwright Vaclav Havel as president of a democratic Czechoslovakia. The Czech Republic separated from Slovakia in the “velvet divorce,” becoming an independent nation in 1993 and joining the European Union in 2004. Although prospects for adoption of the euro are uncertain because of the EU economic crisis, recent legislation and presidential positions indicate that the government is moving toward closer alignment with the eurozone. The Civic Democrats Party was defeated in January 2013, and the Social-Democratic Political Party under President Milos Zeman came to power. The government is trying to pursue pension reform and other measures to shrink government.

Rule of LawView Methodology

Property Rights 70.0 Create a Graph using this measurement

Freedom From Corruption 45.3 Create a Graph using this measurement

In 2012, several scandals involving senior government officials highlighted ongoing corruption and lack of transparency and caused the European Commission to cut around $650 million of EU aid to the Czech Republic. The judiciary’s independence is largely respected, though its complexity and multilayered composition lead to the slow delivery of judgments. Property rights are relatively well protected, and contracts are generally secure.

Limited GovernmentView Methodology

The Czech Republic’s top individual income tax rate is 15 percent, and the corporate tax rate remains at 19 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden is equivalent to 35.3 percent of GDP. Tax increases and budget cuts have yielded surpluses in recent years, and government spending has stabilized at 43 percent of GDP. Public debt is around 45 percent of the domestic economy.

Regulatory EfficiencyView Methodology

Incorporating a business has become less time-consuming, and licensing requirements have been eased. The minimum capital requirement is now less than 30 percent of the level of average annual income. Labor regulations are relatively flexible, although the non-salary cost of employees can be burdensome. Although a range of price controls are maintained, the state has taken steps to reduce subsidies for state pensions and green energy.

Open MarketsView Methodology

EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. Restrictions on foreign land ownership have been phased out. The relatively well-regulated financial market continues to grow steadily. The banking sector remains competitive and resilient, offering a wider range of financial products.

Country's Score Over Time

Bar Graph of Czech Republic Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Czech Republic to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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