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- GDP (PPP):
- $268.5 billion
- 2.8% growth
- 3.8% 5-year compound annual growth
- $32,691 per capita
- Inflation (CPI):
- FDI Inflow:
Israel’s openness to global commerce is an important factor in promoting innovation and productivity growth. Benefitting from an increasingly diversified productive base and ongoing structural reforms, the economy has grown almost 4 percent annually over the past five years. The government has revitalized privatization programs covering all key state-owned entities, but progress remains to be seen.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 70.7 (up 0.2 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 35th
- Regional Ranking: 4th in the Middle East/North Africa Region
- Notable Successes: Open Markets, Rule of Law, and Regulatory Efficiency
- Concerns: Management of Public Finance
- Overall Score Change Since 2012: +2.9
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 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, as well as the constant threat of terrorism, Israel’s economy is fundamentally sound and dynamic.
Bribery and other forms of corruption are illegal under several Israeli laws and civil service regulations. A strong societal intolerance for graft contributes to a governance environment with relatively low levels of corruption that has buttressed the foundations of economic freedom. Israel’s modern legal system is based on British common law and provides effective means for enforcing property and contractual rights. Courts are independent.
The top personal income tax rate has been raised to 48 percent, and the corporate tax rate has been increased to 26.5 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 30.5 percent of total domestic income. Government spending amounts to 41.3 percent of GDP. The government has been running a budget deficit, and public debt corresponds to around 70 percent of GDP.
The relatively efficient regulatory framework supports business formation and innovation, and no minimum capital is required to launch a business. The labor market needs more flexibility to accommodate rapid economic transformation. As economic recovery proceeds in 2016, the center-right government’s plans to revive its stalled privatization program are likely to meet union resistance.
Israel’s average tariff rate is 0.9 percent. The government restricts imports of some agricultural products. Foreign investment in most sectors of the economy is not subject to screening. State-owned enterprises operate in several sectors, including transportation and energy. Financial institutions offer a wide range of services. Capital markets have been evolving as part of Israel’s effort to reinvent itself as a regional financial hub.