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- GDP (PPP):
- $281.9 billion
- 2.6% growth
- 3.3% 5-year compound annual growth
- $33,656 per capita
- Inflation (CPI):
- FDI Inflow:
Despite a very challenging external economic environment, Israel’s economy has been on a path of economic expansion. With the productive base increasingly diversified and structural reforms ongoing, steady growth has averaged over 3 percent annually over the past five years. Economic competitiveness has been anchored in strong protection of property rights and facilitated by openness to global trade and investment.
Business start-ups have been well supported by efficient regulatory processes and effective policy coordination. Israel has the world’s highest concentration of high-technology start-ups per capita. Contributing to overall stability, the sound judicial framework sustains the rule of law. Maintaining better management of public finance will be critical to ensuring economic resilience.
Israel gained independence in 1948, and its vibrant democracy remains unique in the region. Prime Minister Benjamin Netanyahu, reelected in March 2015, leads a coalition government of right-leaning and religious parties. Israel has a modern market economy with a thriving high-technology sector that attracts considerable foreign investment. The recent discovery of large offshore natural gas deposits has improved both its energy security and its balance-of-payments prospects. Despite the 2006 war against Hezbollah in Lebanon and the 2008–2009, 2012, and 2014 wars against Hamas in Gaza, as well as the constant threat of terrorism, Israel’s economy is fundamentally sound and dynamic.
Secured interests in property are recognized, and the system for recording titles is reliable. Israel’s judicial system, based on British common law, enforces property and contractual rights effectively. Courts are independent. Bribery and other forms of corruption are illegal. A strong societal intolerance for graft underpins governance with relatively low levels of corruption and has strengthened the foundations of economic freedom.
The top personal income tax rate is 48 percent. The corporate tax rate has been cut to 25 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 31.1 percent of total domestic income. Government spending has amounted to 40.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.5 percent of GDP. Public debt is equivalent to 64.6 percent of GDP.
The overall regulatory framework promotes efficiency and entrepreneurial activity. The labor market needs more flexibility to accommodate the rapidly transforming economy, but the nonsalary cost of employing a worker is relatively low. Since widespread demonstrations in 2011, the government has maintained economically distorting price controls for many basic foods such as dairy products, eggs, bread, and salt and for basic banking services.
Trade is important to Israel’s economy; the value of exports and imports taken together equals 59 percent of GDP. The average applied tariff rate is 1.0 percent. The government owns most of the land, and state-owned enterprises distort the economy. The financial sector facilitates a high level of capital liquidity. Banking remains concentrated, but commercial banks offer a range of financial services that support private-sector development.