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- GDP (PPP):
- $29.8 billion
- 0.8% growth
- 0.2% 5-year compound annual growth
- $23,144 per capita
- Inflation (CPI):
- FDI Inflow:
Estonia’s economic freedom score is 76.8, making its economy the 8th freest in the 2015 Index. Its overall score is 0.9 point higher than last year, reflecting improvements in six of the 10 economic freedoms, including business freedom, freedom from corruption, and labor freedom. Estonia is ranked 2nd out of 43 countries in the Europe region, and its overall score is well above the regional and world averages.
Despite the eurozone crisis and a half-decade of weak regional growth, Estonia’s domestic economy has proven resilient, and economic freedom has advanced. Since 2011, economic freedom has increased in a majority of the 10 factors, with strong improvements in the property rights regime and the entrepreneurial environment.
An increase in its overall score for the past three years has helped to confirm Estonia as a regional leader in economic freedom, reestablished as one of the world’s 10 freest economies for the first time since 2007. Minimal state interference has been accompanied by a prudent fiscal policy, a commitment to open markets, and overall regulatory efficiency. In addition, the government has reinforced the rule of law and promoted an independent judiciary since independence from the Soviet Union in 1991.
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 investments have risen substantially. In March 2014, Prime Minister Taavi Röivas of the center-right Reform Party replaced Andrus Ansip, also of the Reform Party, who had served for nine years. Estonia is 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.
There are occasional problems with government corruption. In 2013, senior members of the governing Reform Party were implicated in a business corruption scandal involving a now-defunct company owned by the environment minister’s father. Estonia’s judiciary is effectively insulated from government influence. Property rights and contracts are well enforced and secure. Commercial codes are applied consistently.
The top individual income tax rate is 21 percent, and the corporate tax is 21 percent of the net amount of profit distribution. Other taxes include a value-added tax and excise taxes. Total government revenue equals 32.5 percent of the domestic economy, and government spending equals 39.5 percent of domestic income. Public debt is a relatively low 11 percent of gross domestic product.
Recent reforms have facilitated insolvent firms’ restructuring, making bankruptcy procedures less costly and improving regulatory efficiency. Enhancing labor productivity has been a key goal, and the recently enacted labor law aims to reduce the costs of dismissing employees. In 2014, the government reduced the “renewable energy fee” on monthly electricity bills to cushion the effect of higher prices from liberalization.
EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Foreign and domestic investors are generally treated equally under Estonian law. The relatively well regulated financial market continues to grow steadily. The banking sector remains competitively open and resilient, offering a wider range of financial products.