2015 Index of Economic Freedom

Israel

overall score70.5
world rank33
Rule of Law

Property Rights75.0

Freedom From Corruption61.0

Limited Government

Government Spending47.8

Fiscal Freedom61.9

Regulatory Efficiency

Business Freedom72.4

Labor Freedom67.1

Monetary Freedom81.6

Open Markets

Trade Freedom88.6

Investment Freedom80.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 7.9 million
  • GDP (PPP):
    • $273.7 billion
    • 3.3% growth
    • 3.6% 5-year compound annual growth
    • $34,770 per capita
  • Unemployment:
    • 6.7%
  • Inflation (CPI):
    • 1.5%
  • FDI Inflow:
    • $11.8 billion
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Israel’s economic freedom score is 70.5, making its economy the 33rd freest in the 2015 Index. Its overall score is 2.1 points better than last year, with improvements in six of the 10 economic freedoms, including the management of government spending, trade freedom, labor freedom, and fiscal freedom. Registering the 10th largest score increase in the 2015 Index, Israel has achieved its highest score ever. Israel is ranked 4th out of 15 countries in the Middle East/North Africa region, and its overall score is above the world and regional averages.

Broad, sustained improvements in property rights and the regulatory sectors over the past five years have propelled Israel into the ranks of the “mostly free” for the first time. Since 2011, economic freedom has advanced by 2.0 points, with scores advancing broadly in six of the 10 categories measured. Improvements in property rights and the regulatory environment have been the backbone of this advance.

A democratic and free-market bastion in the Middle East, Israel has entrenched the principles of economic freedom during its development. A small, open economy, Israel relies on its competitive regulatory environment and well-established rule of law to attract international investment. While government spending is sizeable, the government has not interfered heavily with industrial activity.

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Background

Israel gained independence in 1948, and its vibrant democracy remains unique in the region. Prime Minister Benjamin Netanyahu, re-elected in January 2013, leads a right-of-center coalition government. Israel has developed a modern market economy with a thriving high-technology sector that attracts considerable foreign investment because of reliable property rights. The recent discovery of large offshore natural gas deposits has improved Israel’s energy security and balance-of-payments prospects. Despite the 2006 war against Hezbollah in Lebanon and the 2008–2009, 2012, and 2014 wars against Hamas in Gaza, and despite the constant threat of terrorism, Israel’s economy remains fundamentally sound, growing by over 3 percent in 2013.

Rule of LawView Methodology

Property Rights 75.0 Create a Graph using this measurement

Freedom From Corruption 61.0 Create a Graph using this measurement

Fairly frequent high-level corruption investigations (e.g., leading to the 2014 bribery conviction of a former prime minister), coupled with a strong societal intolerance for graft, have led to a governance environment with relatively low levels of corruption. Israel has a modern and independent legal system that provides effective means for enforcing property and contractual rights.

Limited GovernmentView Methodology

The top individual income tax rate is 48 percent, and the top corporate tax rate is now 26.5 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden is equivalent to 28.3 percent of domestic production. Government expenditures equal 41.7 percent of domestic output, and public debt equals 67 percent of gross domestic product.

Regulatory EfficiencyView Methodology

With no minimum capital requirement, incorporating a business takes five procedures, but completing licensing requirements takes over 200 days on average. The labor market remains relatively flexible, and labor costs are moderate. Prices are generally set by market forces, but the government controls food prices and subsidizes some political priorities (e.g., West Bank settlement housing and green energy initiatives).

Open MarketsView Methodology

Israel’s average tariff rate is 0.7 percent. The government has worked to facilitate trade. It maintains some sectoral restrictions on foreign investment but generally welcomes investment. The evolving financial system, dominated by banks, functions without undue government influence. Credit is allocated on market terms, and relatively sound regulation and supervision assure free flows of financial resources.

Country's Score Over Time

Bar Graph of Israel Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Bahrain73.4-1.7
2United Arab Emirates72.41.0
3Qatar70.8-0.4
4Israel70.52.1
5Jordan69.30.1
6Oman66.7-0.7
7Kuwait62.50.2
8Saudi Arabia62.1-0.1
9Morocco60.11.8
10Lebanon59.3-0.1
11Tunisia57.70.4
12Egypt55.22.3
13Yemen53.7-1.8
14Algeria48.9-1.9
15Iran41.81.5


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