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- GDP (PPP):
- $35.6 billion
- 2.1% growth
- 3.8% 5-year compound annual growth
- $26,999 per capita
- Inflation (CPI):
- FDI Inflow:
The Estonian economy continues to benefit from the government’s strong commitment to economic freedom. The rule of law is enforced by an independent judicial system. A simplified tax system, dependable regulatory efficiency, and dynamic engagement with global commerce support the resilient and well-functioning economy.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 77.2 (up 0.4 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 9th
- Regional Ranking: 3rd in Europe
- Notable Successes: Rule of Law, Management of Public Finance, and Open Markets
- Concerns: Labor Freedom
- Overall Score Change Since 2012: +4
Institutionalized openness and flexibility have given Estonia an impressive capacity to adjust to external shocks. The small economy has reacted quickly to the challenging economic environment since 2009, with wage cuts and swift employment adjustments facilitated by a new labor law. Sound macroeconomic policies ensure vibrant investment and entrepreneurial activity.
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. The center-right Reform Party won the most seats in the March 2015 parliamentary elections and heads a coalition government. Estonia is one of the world’s most dynamic and modern economies and has the EU’s lowest debt-to-GDP ratio. Domestic demand and strong trade relations with Russia, Germany, Sweden, and Finland have fueled modest economic growth.
There are occasional problems with government corruption. Recent years have seen heavily publicized allegations of money laundering within the Reform Party and the Center Party, but no criminal convictions have followed. The judiciary is effectively insulated from government influence. Property rights and contracts are well enforced and secure. Commercial codes are applied consistently.
The top personal income and corporate tax rates have been reduced to 20 percent. Undistributed profits are not taxed. Other taxes include a value-added tax and excise taxes. The overall tax burden equals 31.8 percent of total domestic income. Government spending amounts to 38.8 percent of total domestic output. Widening budget deficits have been brought under control, and public debt remains less than 10 percent of GDP.
The business start-up process is straightforward, and the cost of completing licensing requirements has been substantially reduced. Enhancing labor productivity has been a key goal. A government scheme augmented with EU funding that uses targeted subsidies in an attempt to create a “Baltic Silicon Valley” of information technology start-up businesses has received mixed reviews.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. 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 financing options with little state intervention.