2017 Index of Economic Freedom

Luxembourg

overall score75.9
world rank14
Rule of Law

Property Rights85.8

Government Integrity78.3

Judicial Effectiveness77.0

Government Size

Government Spending46.0

Tax Burden64.5

Fiscal Health99.0

Regulatory Efficiency

Business Freedom68.6

Labor Freedom43.8

Monetary Freedom86.2

Open Markets

Trade Freedom87.0

Investment Freedom95.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 0.6 million
  • GDP (PPP):
    • $55.7 billion
    • 4.5% growth
    • 2.9% 5-year compound annual growth
    • $98,987 per capita
  • Unemployment:
    • 5.9%
  • Inflation (CPI):
    • 0.1%
  • FDI Inflow:
    • $24.6 billion
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Luxembourg’s economic competitiveness is sustained by solid institutional foundations for an open-market system. The judiciary, independent and free of corruption, protects property rights and upholds the rule of law. The economy is open to global trade and investment, and high levels of regulatory transparency and efficiency encourage vibrant entrepreneurial activity.

The fiscal environment remains characterized by high public spending on social programs. Relatively stringent employment protection tends to undercut job mobility and dynamic employment growth. Fiscal consolidation and enhancement of Luxembourg’s status as a global financial center are among the coalition government’s main policy objectives. The recent tax reform package has lowered the top corporate tax rate.

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Background

A founding member of the European Union in 1957 and the eurozone in 1999, the Grand Duchy of Luxembourg continues to promote European integration. Prime Minister Xavier Bettel of the Democratic Party was elected in December 2013, defeating the Christian Social People’s Party that had been in power since 1979. Luxembourgers have one of the world’s highest income levels, although the global economic crisis provoked the first recession in 60 years in 2009. Growth is strong, and unemployment remains well below the EU average. During the 20th century, Luxembourg evolved into a mixed manufacturing and services economy with a strong financial services sector.

Rule of LawView Methodology

Property Rights 85.8 Create a Graph using this measurement

Government Integrity 78.3 Create a Graph using this measurement

Judicial Effectiveness 77.0 Create a Graph using this measurement

Private property rights are well protected, contracts are secure, and steps have been taken to implement and enforce the World Trade Organization’s TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement. The judiciary is independent, and the legal framework strongly supports the rule of law. Luxembourg has laws, regulations, and penalties to combat corruption effectively, and they are enforced impartially.

Government SizeView Methodology

The top individual income tax rate is 42 percent, and the top corporate tax rate has been reduced from 21 percent to 19 percent. Other taxes include a value-added tax. The overall tax burden equals 37.8 percent of total domestic income. Government spending has amounted to 42.4 percent of total output (GDP) over the past three years, and budget surpluses have averaged 1.0 percent of GDP. Public debt is equivalent to 21.8 percent of GDP.

Regulatory EfficiencyView Methodology

The overall freedom to start, operate, and close a business is relatively well protected under the transparent regulatory environment. However, labor regulations are costly, unemployment benefits are quite generous, and the minimum wage is high. Monetary stability has been well maintained. Luxembourg has a highly subsidized agricultural sector and the highest rate of fuel subsidies per citizen in Europe.

Open MarketsView Methodology

Trade is extremely important to Luxembourg’s economy; the value of exports and imports taken together equals 391 percent of GDP. The average applied tariff rate is 1.5 percent. In general, foreign and domestic investors are treated equally under the law. The sophisticated banking sector is well capitalized, competitive, and supported by transparent and effective regulations. Many of the world’s leading banks have subsidiaries in Luxembourg.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.50.5
2Estonia79.11.9
3Ireland76.7-0.6
4United Kingdom76.40.0
5Georgia763.4
6Luxembourg75.92.0
7The Netherlands75.81.2
8Lithuania75.80.6
9Denmark75.1-0.2
10Sweden74.92.9
11Latvia74.84.4
12Iceland74.41.1
13Finland741.4
14Norway743.2
15Germany73.8-0.6
16Czech Republic73.30.1
17Austria72.30.6
18Macedonia70.73.2
19Armenia70.33.3
20Romania69.74.1
21Poland68.3-1.0
22Kosovo67.96.5
23Bulgaria67.92.0
24Cyprus67.9-0.8
25Belgium67.8-0.6
26Malta67.71.0
27Hungary 65.8-0.2
28Slovakia65.7-0.9
29Turkey65.23.1
30Albania64.4-1.5
31Spain63.6-4.9
32France63.31.0
33Portugal62.6-2.5
34Italy62.51.3
35Montenegro62-2.9
36Bosnia and Herzegovina60.21.6
37Croatia59.40.3
38Slovenia59.2-1.4
39Serbia 58.9-3.2
40Belarus58.69.8
41Moldova580.6
42Russia57.16.5
43Greece551.8
44Ukraine48.11.3
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