2017 Index of Economic Freedom

Iceland

overall score74.4
world rank22
Rule of Law

Property Rights85.0

Government Integrity71.5

Judicial Effectiveness71.5

Government Size

Government Spending41.1

Tax Burden70.9

Fiscal Health90.6

Regulatory Efficiency

Business Freedom90.2

Labor Freedom62.6

Monetary Freedom81.2

Open Markets

Trade Freedom88.0

Investment Freedom80.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.3 million
  • GDP (PPP):
    • $15.2 billion
    • 4.0% growth
    • 2.7% 5-year compound annual growth
    • $46,097 per capita
  • Unemployment:
    • 4.4%
  • Inflation (CPI):
    • 1.6%
  • FDI Inflow:
    • $-76.2 million
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Iceland’s modern and competitive economy benefits from a strong commitment to open-market policies that facilitate dynamic flows of trade and investment. Transparent and efficient regulations are applied evenly in most cases and encourage vigorous private-sector entrepreneurial activity. Measures to lift capital controls imposed in the wake of the 2008 financial crisis are underway.

The strength of Iceland’s economic and social institutions is reinforced by robust protection of property rights and an independent judiciary that enforces anticorruption measures. Management of public finance has been comparatively prudent, with continued attention to the size and scope of government. Monetary stability has been well maintained.

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Background

Sigurður Ingi Jóhannsson became prime minister in April 2016 following the resignation of Sigmundur Davíð Gunnlaugsson after revelations in the Panama Papers of ownership in an offshore company. The Progressive Party has ruled in a coalition with the Independence Party since parliamentary elections in April 2013. Public distrust of politicians helped propel Guðni Jóhannesson, an independent historian, to the largely ceremonial presidency following elections in June 2016. Iceland officially withdrew its application for membership in the European Union in March 2015. Its relationship with the EU includes free trade and movement of capital, labor, goods, and services within the region. Domestic consumption and tourism have fueled growth in recent years.

Rule of LawView Methodology

Property Rights 85.0 Create a Graph using this measurement

Government Integrity 71.5 Create a Graph using this measurement

Judicial Effectiveness 71.5 Create a Graph using this measurement

Private property is well protected, but real property rights are mostly reserved to Icelandic citizens. Iceland has a solid legal institutional framework to enforce laws protecting intellectual property. The judiciary is independent, and accountability and transparency are institutionalized. Corruption is contained, although the prime minister stepped down in April 2016 following a tax scandal involving an offshore company that he set up with his wife.

Government SizeView Methodology

The top personal income tax rate is 31.8 percent, and the flat corporate rate is 20 percent. Other taxes include a value-added tax and an estate tax. The overall tax burden equals 38.7 percent of total domestic income. Government spending has amounted to 44.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.4 percent of GDP. Public debt is equivalent to 67.6 percent of GDP.

Regulatory EfficiencyView Methodology

The transparent regulatory environment supports commercial activity, allowing business formation and operation to be efficient. The labor market, characterized by broad wage settlements and high unionization, lacks flexibility. A new law passed in June 2016 authorizes the central bank to impose reserve requirements on certain capital inflows as part of efforts to dismantle existing capital controls.

Open MarketsView Methodology

Trade is extremely important to Iceland’s economy; the value of exports and imports taken together equals 100 percent of GDP. The average applied tariff rate is 1.0 percent. Iceland has restructured and recapitalized its banking system since the 2008 banking crisis. Implementation of a plan to liberalize capital controls is in its final stages, with the majority of the controls to be eased or removed in 2017.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.50.5
2Estonia79.11.9
3Ireland76.7-0.6
4United Kingdom76.40.0
5Georgia763.4
6Luxembourg75.92.0
7The Netherlands75.81.2
8Lithuania75.80.6
9Denmark75.1-0.2
10Sweden74.92.9
11Latvia74.84.4
12Iceland74.41.1
13Finland741.4
14Norway743.2
15Germany73.8-0.6
16Czech Republic73.30.1
17Austria72.30.6
18Macedonia70.73.2
19Armenia70.33.3
20Romania69.74.1
21Poland68.3-1.0
22Kosovo67.96.5
23Bulgaria67.92.0
24Cyprus67.9-0.8
25Belgium67.8-0.6
26Malta67.71.0
27Hungary 65.8-0.2
28Slovakia65.7-0.9
29Turkey65.23.1
30Albania64.4-1.5
31Spain63.6-4.9
32France63.31.0
33Portugal62.6-2.5
34Italy62.51.3
35Montenegro62-2.9
36Bosnia and Herzegovina60.21.6
37Croatia59.40.3
38Slovenia59.2-1.4
39Serbia 58.9-3.2
40Belarus58.69.8
41Moldova580.6
42Russia57.16.5
43Greece551.8
44Ukraine48.11.3
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