2014 Index of Economic Freedom

Iceland

overall score72.4
world rank23
Rule of Law

Property Rights90.0

Freedom From Corruption84.2

Limited Government

Government Spending32.9

Fiscal Freedom72.9

Regulatory Efficiency

Business Freedom91.2

Labor Freedom59.1

Monetary Freedom76.0

Open Markets

Trade Freedom87.9

Investment Freedom70.0

Financial Freedom60.0

Embed This Data

Create a Comparison Chart

See how Iceland compares to another country using any of the measures in the Index.

vs
Close
Download PDF
Quick Facts
  • Population:
    • 0.3 million
  • GDP (PPP):
    • $12.8 billion
    • 1.6% growth
    • -1.1% 5-year compound annual growth
    • $39,224 per capita
  • Unemployment:
    • 5.8%
  • Inflation (CPI):
    • 5.2%
  • FDI Inflow:
    • $510.7 million
Embed This Data

Iceland’s economic freedom score is 72.4, making its economy the 23rd freest in the 2014 Index. Its overall score is 0.3 point better than last year, with improvements in six of the 10 economic freedoms, including investment freedom and freedom from corruption, overcoming declines in the management of government spending and business freedom. Iceland is ranked 13th out of 43 countries in the Europe region, and its overall score remains well above the world and regional averages.

Iceland’s economic freedom was first assessed in the 1997 Index, and its economy has been largely rated “mostly free.” Gains in four of the 10 economic freedoms, including business freedom and fiscal freedom, which have improved by more than 10 points, have helped Iceland’s overall economic freedom to advance by about 2 points over its history in the Index.

Iceland has demonstrated a strong commitment to restoring sound public finance and policy credibility. Regulatory efficiency and open-market policies underpin efforts to restore positive momentum. However, the emergency economic measures, particularly capital controls, implemented by the socialist government during the financial crisis are being unwound only slowly and constitute a serious barrier to greater economic dynamism.

Close

Background

The collapse of Iceland’s banking sector in 2008 sparked a currency crisis and a substantial contraction of the economy. 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 consisting of the Progressive Party and Independence Party. The new governing coalition indefinitely suspended accession talks with the EU in May 2013. In order 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.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 84.2 Create a Graph using this measurement

Corruption is not a serious problem, although there have been a few politically tinged business-fraud scandals in recent years. A 1,000-year history of parliamentary government has engendered the institutionalization of accountability and transparency. Private property is well protected. 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 (VAT) and an estate tax. The overall tax burden is 36 percent of gross domestic income. Government expenditures equal 47 percent of the domestic economy. Iceland continues to emerge from austerity brought on by the financial crisis, but public debt remains near 100 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory regime continues to sustain innovative business formation and operation. Starting a business takes five procedures and five days on average and costs about 3 percent of the level of average annual income. Bankruptcy proceedings are relatively easy. Labor regulations are rigid, with broad wage settlements and high unionization. Despite the challenging economic situation, monetary stability remains relatively well maintained.

Open MarketsView Methodology

Iceland’s average tariff rate is only 1 percent, but trade barriers restrict imports of meat and dairy products. Capital controls that were put in place in 2008 have discouraged foreign investment, but they have been slated for elimination. The financial sector remains dominated by banking. After a period of intense strain, the banking sector has been largely recapitalized, and Iceland has returned to the global bond market.

Country's Score Over Time

Bar Graph of Iceland Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Iceland 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
See Entire Region List ›

View all countries ›

Back to Top