2014 Index of Economic Freedom

Israel

overall score68.4
world rank44
Rule of Law

Property Rights75.0

Freedom From Corruption59.3

Limited Government

Government Spending40.3

Fiscal Freedom60.1

Regulatory Efficiency

Business Freedom73.2

Labor Freedom63.0

Monetary Freedom80.6

Open Markets

Trade Freedom82.9

Investment Freedom80.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 7.7 million
  • GDP (PPP):
    • $248.7 billion
    • 3.1% growth
    • 3.6% 5-year compound annual growth
    • $32,312 per capita
  • Unemployment:
    • 6.9%
  • Inflation (CPI):
    • 1.7%
  • FDI Inflow:
    • $10.4 billion
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Israel’s economic freedom score is 68.4, making its economy the 44th freest in the 2014 Index. Its overall score has increased by 1.5 points due to improvements in half of the 10 economic freedoms including business freedom, property rights, monetary freedom, and freedom from corruption. Israel is ranked 5th out of 15 countries in the Middle East/North Africa region.

Over the 20-year history of the Index, Israel has been consistently rated a “moderately free” economy, and its score has increased by almost 7 points. Improvements have been recorded in seven of the 10 economic freedoms, notably financial freedom, freedom from corruption, and fiscal freedom, which have advanced by double digits. However, Israel has lagged in enhancing regulatory efficiency.

Despite the challenging global economic environment, the Israeli economy has been on a path of well-balanced recovery. With the productive base increasingly diversified and structural reforms ongoing, Israel has achieved steady growth of over 3 percent annually over the past five years. Its economic competitiveness is anchored in strong protection of property rights and relatively low levels of corruption and facilitated by openness to global trade and investment.

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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 economy that attracts considerable foreign investment because of reliable property rights. The discovery of large offshore natural gas deposits has improved Israel’s energy security and balance-of-payments prospects. Domestic production was expected to meet domestic natural gas needs by the end of 2013. Exports of goods and services generate about 40 percent of GDP. Despite the 2006 war against Hezbollah in Lebanon, the December 2008 war against Hamas in Gaza, and the constant threat of terrorism, Israel recovered faster than most other countries from the global financial crisis in 2008–2009.

Rule of LawView Methodology

Property Rights 75.0 Create a Graph using this measurement

Freedom From Corruption 59.3 Create a Graph using this measurement

Bribery and other forms of corruption are illegal, and relatively effective anti-corruption measures help to strengthen the foundations of economic freedom. Israel’s modern and independent legal system is based on British common law and provides effective enforcement of property and contractual rights. Courts are independent. Contracts are enforced effectively, and protection of intellectual property has improved.

Limited GovernmentView Methodology

Israel’s top individual income tax rate is 48 percent, and its top corporate tax rate remains at 25 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden is 32.6 percent of gross domestic income. Public expenditures amount to 45 percent of GDP. Government debt is equal to about 75 percent of gross domestic income.

Regulatory EfficiencyView Methodology

Launching a business takes five procedures on average, and no minimum capital is required, but obtaining necessary permits involves about 20 procedures and takes over 200 days. The labor market needs more flexibility to accommodate rapid economic transformation. Prices are generally set by market forces, but the government subsidizes some political priorities such as West Bank settlement housing and green energy initiatives.

Open MarketsView Methodology

Israel has a 3.5 percent average tariff rate, and there are some additional barriers to agricultural imports. Foreign investment is generally welcomed on a non-discriminatory basis. The financial sector has undergone tremendous change in recent years. Financial institutions offer a wide range of services, and credit is readily available on market terms. Capital markets continue to evolve.

Country's Score Over Time

Bar Graph of Israel Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Israel to other economic country groups

Regional Ranking

rank country overall change
1Bahrain75.1-0.4
2United Arab Emirates71.40.3
3Qatar71.2-0.1
4Jordan69.2-1.2
5Israel68.41.5
6Oman67.4-0.7
7Kuwait62.3-0.8
8Saudi Arabia62.21.6
9Lebanon59.4-0.1
10Morocco58.3-1.3
11Tunisia57.30.3
12Yemen55.5-0.4
13Egypt52.9-1.9
14Algeria50.81.2
15Iran40.3-2.9


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