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- GDP (PPP):
- $27.3 billion
- 7.6% growth
- -0.5% 5-year compound annual growth
- $20,380 per capita
- Inflation (CPI):
- FDI Inflow:
Estonia’s economic freedom score is 75.3, making its economy the 13th freest in the 2013 Index. Its overall score is 2.1 points higher than last year, driven by notable improvements in the management of government spending, property rights, and business freedom. Estonia is ranked 4th out of 43 countries in the Europe region, and its overall score is well above the regional and world averages.
Recording the sixth largest score increase in the 2013 Index, Estonia continues to be a global leader in economic freedom. The economy rests on solid foundations, with the rule of law strongly buttressed and enforced by an independent and efficient judicial system. A simplified tax system with flat rates and low indirect taxation, a competitive banking sector, openness to foreign investment, and a historically liberal trade regime all support the resilient and well-functioning economy.
Though the economy contracted sharply during the recent recession, Estonia’s determination to defend economic freedom has contributed to its swift, strong rebound over the past two years. In particular, revitalized efforts to move even further toward limited government and ensure long-term fiscal sustainability have played a notable role in restoring economic vitality. Fiscal adjustments have brought down budget deficits and kept public debt levels among the lowest in the world.
Estonia regained its independence from the Soviet Union in 1991 and has become a stable multi-party democracy. It became a member of NATO and the European Union in 2004, joined the Organisation for Economic Co-operation and Development in 2010, and adopted the euro in 2011. After the March 2011 election, a center-right coalition of the Reform Party and the Pro Patria–Res Publica Union (IRL) was formed. Andrus Ansip of the Reform Party has been prime minister since 2005. Estonia has become one of the world’s most dynamic and modern economies and is the first ex-Soviet state to adopt the euro. The economic outlook is stable, but growth has slowed due to the EU economic crisis. Estonia’s economy is dominated by industry and services.
Estonia’s judiciary is effectively insulated from government influence. Property rights and contracts are well enforced and secure. Commercial codes are applied consistently. The long, complex post-USSR property restitution process (begun in 1991) is almost complete, even in the area of non-residential property. Protection of intellectual property rights is consistent with global standards. Anti-corruption measures are relatively strong.
The top income and corporate tax rates are 21 percent. Undistributed profits are not taxed. Other taxes include a value-added tax (VAT) and excise taxes. The overall tax burden is equal to 34 percent of total domestic income. Government spending amounts to 38.2 percent of total domestic output. Previously widening budget deficits are under control, and public debt continues to be less than 10 percent of GDP.
The business start-up process is straightforward, taking only five procedures and seven days. The cost of completing licensing requirements has been substantially reduced. Enhancing labor productivity has been a key goal, and the recently enacted labor law aims to reduce costs of dismissal. Adoption of the euro did not produce the feared rise in consumer prices.
Estonia maintains a common low external tariff with other members of the European Union. The overall trade regime is fairly competitive and promotes the dynamic growth of trade. The investment environment is attractive and conducive to the free flow of capital. Foreign and domestic investors have the same legal rights. The competitive banking sector provides a wide range of financial services with little state intervention.