2014 Index of Economic Freedom

Estonia

overall score75.9
world rank11
Rule of Law

Property Rights90.0

Freedom From Corruption64.2

Limited Government

Government Spending56.0

Fiscal Freedom80.4

Regulatory Efficiency

Business Freedom77.6

Labor Freedom55.9

Monetary Freedom76.9

Open Markets

Trade Freedom87.8

Investment Freedom90.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 1.3 million
  • GDP (PPP):
    • $29.1 billion
    • 3.2% growth
    • -1.0% 5-year compound annual growth
    • $21,713 per capita
  • Unemployment:
    • 9.8%
  • Inflation (CPI):
    • 4.2%
  • FDI Inflow:
    • $1.5 billion
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Estonia’s economic freedom score is 75.9, making its economy the 11th freest in the 2014 Index. Its overall score is 0.6 point higher than last year, with improvements in property rights and trade freedom offsetting a small combined decline in business freedom and the management of public spending. Estonia is ranked 4th out of 43 countries in the Europe region, and its overall score is well above the regional and world averages.

Over the 20-year history of the Index, Estonia has recorded an impressive score improvement of nearly 11 points, lifting the economy from the ranks of the “moderately free” to the “mostly free.” The country has recorded advancements in six of the 10 economic freedoms, including property rights, freedom from corruption, monetary freedom, trade freedom, and financial freedom, the scores for which have improved by double digits. Market openness has been significantly enhanced and has facilitated Estonia’s impressive transition to a free-market economy.

In a challenging global and regional environment, the Estonian economy has demonstrated a high level of resilience and achieved swift economic rebound. Persistent efforts to restore fiscal stability by revitalizing the commitment to limited government have borne fruit. Decisive fiscal consolidation measures have narrowed budget deficits and kept public debt under control.

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Background

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 adopted the euro, making it the first ex-Soviet state to do so. With a liberal investment climate, foreign investments have risen substantially. Prime Minister Andrus Ansip of the Reform Party has held office since 2005, providing stability and implementing market-oriented policies. Estonia has become one of the world’s most dynamic and modern economies. It profits from strong electronics and telecommunication sectors and has strong trade relations with Russia, Germany, Sweden, and Finland.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 64.2 Create a Graph using this measurement

Although there are occasional problems with government corruption in Estonia, the parliament strengthened already tough anti-corruption laws in 2012 to increase transparency and strengthen requirements for politicians to declare their assets. The judiciary is effectively insulated from government influence. Property rights and contracts are well enforced and secure. Commercial codes are applied consistently.

Limited GovernmentView Methodology

The top individual income tax rate is 21 percent. The top corporate tax rate is also 21 percent on the gross amount of profit distribution. Other taxes include a value-added tax (VAT) and excise taxes. The overall tax burden is 32.8 percent of total domestic income. Government expenditures are around 38 percent of GDP, and public debt is less than 10 percent of the size of the economy. Austerity measures have put the national debt on a sustainable path.

Regulatory EfficiencyView Methodology

The business start-up process is straightforward and takes about a week. The cost of completing licensing requirements has been cut to less than a quarter of the level of average annual income. The recently enacted labor law aims to reduce costs of dismissal. In 2013, the government reduced subsidies to renewable-energy producers that were being financed by monthly fees on consumers’ utility bills.

Open MarketsView Methodology

EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. There are few formal barriers to foreign investment. The financial sector remains supported by efficient supervisory frameworks. With little state intervention in place, the competitive banking sector provides a wide range of financial services. Non-performing loans represent only about 4 percent of total loans.

Country's Score Over Time

Bar Graph of Estonia Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Estonia 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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