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- GDP (PPP):
- $37.5 billion
- 1.1% growth
- 3.7% 5-year compound annual growth
- $28,592 per capita
- Inflation (CPI):
- FDI Inflow:
Estonia’s economy continues to benefit from government policies that sustain a high level of economic freedom. The rule of law remains strongly buttressed and enforced by an independent and efficient judicial system. A simplified tax system with flat rates and low indirect taxation, openness to foreign investment, and a liberal trade regime have supported the resilient and well-functioning economy.
Prudent and sound management of public finance has been notable. In particular, revitalized efforts to move even further toward limited government and ensure long-term fiscal sustainability have helped to sustain economic vitality. Fiscal adjustments have brought down budget deficits and kept levels of public debt among the lowest in the world.
Estonia regained its independence from the Soviet Union in 1991 and is a stable multi-party democracy. It joined NATO and the European Union in 2004 and the Organisation for Economic Co-operation and Development in 2010. In 2011, it became the first former Soviet state to adopt the euro. With a liberal investment climate, foreign investment has risen substantially since independence. In 2014, Estonia became the world’s first country to issue “E-Residency” status to noncitizens, which makes it easier to do business in Estonia. Jüri Ratas, leader of the Centre Party, became prime minister in November 2016 after his party joined a coalition in a parliamentary power struggle to defeat the center-right, pro-market Reform Party of former Prime Minister Taavi Rõivas.
Property rights and contracts are well enforced and secure. Commercial codes are applied consistently. The judiciary is independent and well insulated from government influence. The government has effective mechanisms to investigate and punish abuse and corruption. There have been no reports of impunity involving the security forces, but several high-ranking state officials have been convicted of corruption and criminal misconduct.
The top personal income and corporate tax rates are 20 percent. Undistributed profits are not taxed. Other taxes include a value-added tax and excise taxes. The overall tax burden equals 32.9 percent of total domestic income. Government spending has amounted to 38.4 percent of total output (GDP) over the past three years, and budget surpluses have averaged 0.3 percent of GDP. Public debt is equivalent to 10.1 percent of GDP.
The business start-up process is straightforward, and the cost of completing licensing requirements has been substantially reduced. Enhancing labor productivity and employment growth has been a key goal in ongoing efforts to reform the labor market. Estonian Air, a small airline, went out of business in late 2015 after the European Commission ruled that it benefited from unfair advantages because of heavy government subsidies.
Trade is extremely important to Estonia’s economy; the value of exports and imports taken together equals 155 percent of GDP. The average applied tariff rate is 1.5 percent. Estonia is very open to foreign investment, but several state-owned enterprises distort the economy. The competitive banking sector provides a wide range of financial services with little state intervention.