2015 Index of Economic Freedom

Iceland

overall score72.0
world rank26
Rule of Law

Property Rights90.0

Freedom From Corruption78.0

Limited Government

Government Spending32.6

Fiscal Freedom72.0

Regulatory Efficiency

Business Freedom90.5

Labor Freedom62.2

Monetary Freedom77.0

Open Markets

Trade Freedom88.0

Investment Freedom70.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.3 million
  • GDP (PPP):
    • $13.2 billion
    • 2.9% growth
    • -0.8% 5-year compound annual growth
    • $41,000 per capita
  • Unemployment:
    • 5.6%
  • Inflation (CPI):
    • 3.9%
  • FDI Inflow:
    • $347.1 million
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Iceland’s economic freedom score is 72.0, making its economy the 26th freest in the 2015 Index. Its overall score has decreased by 0.4 point since last year, with combined declines in freedom from corruption, fiscal freedom, business freedom, and the management of public spending outweighing improvements in labor freedom and monetary freedom. Iceland is ranked 14th out of 43 countries in the Europe region, and its overall score remains well above the world and regional averages.

Iceland’s score change in the 2015 Index is negative for the first time in five years. Nonetheless, economic freedom has still advanced by 3.8 points in the past half-decade, led by gains in fiscal freedom, government spending, labor freedom, monetary freedom, and investment freedom.

Despite recent setbacks, Iceland has consistently remained among the “mostly free,” falling below this threshold only once in its history in the Index. Supported by one of the strongest property rights regimes in the world, Iceland has built a society based on the rule of law and open markets. Fiscal policy has ranked poorly in recent years due to a collapsing revenue base and bank bailouts.

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Background

The pro–European Union Social Democrats lost the April 2013 parliamentary elections. Sigmundur Davíð Gunnlaugsson of the Progressive Party was elected prime minister in a coalition government of the Progressive Party and Independence Party. The new government indefinitely suspended accession talks with the EU in May 2013 and then, in May 2014, postponed plans to withdraw its application for EU membership. To join the EU, the government must win a public referendum, and public opinion remains divided. Iceland already enjoys EU-related benefits that include free trade and movement of capital, labor, goods, and services within the region. It also has membership in the Schengen Zone, which allows visa-free travel in 26 European countries. The economy, dependent on tourism and fishing, is expected to grow slowly in 2014 and 2015.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 78.0 Create a Graph using this measurement

The institutionalization of accountability and transparency results from 1,000 years of parliamentary government. Isolated cases of corruption occur but are not an obstacle to foreign investment. Private property is well protected. Iceland has a solid legislative and institutional framework to enforce intellectual property protection laws. The constitution provides for an independent judiciary, and trials are generally public and fair.

Limited GovernmentView Methodology

The top individual income tax rate is 31.8 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax and an estate tax. The total tax burden is equal to 37.2 percent of total domestic income. Public expenditures equal 47.4 percent of gross domestic product. Public debt has fallen steadily but is still equivalent to 90 percent of GDP.

Regulatory EfficiencyView Methodology

The overall regulatory framework is transparent and competitive. Launching a business is subject to minimum capital requirements but takes only five procedures. Bankruptcy procedures are modern and efficient. Labor regulations are relatively rigid, and the non-salary cost of employing a worker is high. Despite the challenging economic situation, inflation was controlled in 2014, and monetary stability has been maintained.

Open MarketsView Methodology

Iceland’s average tariff rate is 1.0 percent. Imports of agricultural goods, including meat and dairy products, are restricted. Capital controls put in place in 2008 have not been fully removed, and investment in some economic sectors is capped. Extensive reforms of financial market regulations have been implemented, and reform is ongoing. The financial system has regained stability, with the banking sector recapitalized.

Country's Score Over Time

Bar Graph of Iceland Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Switzerland80.5-1.1
2Estonia76.80.9
3Ireland76.60.4
4Denmark76.30.2
5United Kingdom75.80.9
6Lithuania74.71.7
7Germany73.80.4
8The Netherlands73.7-0.5
9Finland73.40.0
10Luxembourg73.2-1.0
11Georgia730.4
12Sweden72.7-0.4
13Czech Republic72.50.3
14Iceland72-0.4
15Norway71.80.9
16Austria71.2-1.2
17Latvia69.71.0
18Belgium68.8-1.1
19Poland68.61.6
20Cyprus67.90.3
21Spain67.60.4
22Slovakia67.20.8
23Armenia67.1-1.8
24Macedonia67.1-1.5
25Hungary 66.8-0.2
26Bulgaria66.81.1
27Romania66.61.1
28Malta66.50.1
29Albania65.7-1.2
30Portugal65.31.8
31Montenegro64.71.1
32Turkey63.2-1.7
33France62.5-1.0
34Italy61.70.8
35Croatia61.51.1
36Slovenia60.3-2.4
37Serbia 600.6
38Bosnia and Herzegovina590.6
39Moldova57.50.2
40Greece54-1.7
41Russia52.10.2
42Belarus49.8-0.3
43Ukraine46.9-2.4
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