2014 Index of Economic Freedom

Luxembourg

overall score74.2
world rank16
Rule of Law

Property Rights90.0

Freedom From Corruption84.1

Limited Government

Government Spending47.6

Fiscal Freedom62.8

Regulatory Efficiency

Business Freedom72.6

Labor Freedom43.1

Monetary Freedom78.9

Open Markets

Trade Freedom87.8

Investment Freedom95.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 0.5 million
  • GDP (PPP):
    • $42.2 billion
    • 0.1% growth
    • -0.1% 5-year compound annual growth
    • $79,785 per capita
  • Unemployment:
    • 6.0%
  • Inflation (CPI):
    • 2.9%
  • FDI Inflow:
    • $27.9 billion
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Luxembourg’s economic freedom score is 74.2, making its economy the 16th freest in the 2014 Index. Its overall score is unchanged from last year, with improvements in labor freedom and trade freedom offset by declines in business freedom and fiscal freedom. Luxembourg is ranked 7th out of 43 countries in the Europe region.

Over the 19 years since Luxembourg was first graded in the 1996 Index, its economic freedom score has improved by 1.7 points. Recording score improvements in half of the 10 economic freedoms, including investment freedom, the management of public finance, and financial freedom, Luxembourg has been rated one of the “mostly free” economies.

Openness to global trade and investment has been the cornerstone of Luxembourg’s efficient and dynamic economy. A high degree of macroeconomic stability minimizes uncertainty, and the transparent regulatory framework supports the operation of private enterprises, making Luxembourg an attractive place in which to conduct global business. Financial services represent an important economic sector in Luxembourg.

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Background

A founding member of the European Union in 1957, the Grand Duchy of Luxembourg was also a founding member of the euro in 1999. It continues to promote European integration. Jean-Claude Juncker of the center-right Christian Social People’s Party has been prime minister since 1995. Luxembourgers have one of the world’s highest income levels, although the global economic crisis provoked the first recession in 60 years in 2009. During the 20th century, Luxembourg evolved from an industrial economy into a mixed manufacturing and services economy with a very strong financial services industry. The government is trying to diversify the economy by promoting Luxembourg as an information technology and e-commerce hub. The country has a skilled workforce and well-developed infrastructure.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 84.1 Create a Graph using this measurement

The government is largely free from corruption. Anti-corruption laws are enforced effectively, and the minimum tolerance for corruption encourages transparency and honest government. The judiciary is independent, and the legal framework strongly supports the rule of law. Private property rights are well protected, and contracts are secure. Luxembourg adheres to key international agreements on intellectual property rights.

Limited GovernmentView Methodology

The top individual income tax rate has risen to 43.6 percent, and the top corporate tax rate remains 21 percent. Individuals and corporations also pay a 7 percent to 9 percent surtax for the unemployment fund. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden is 37 percent of gross domestic income. Government spending amounts to 42 percent of GDP.

Regulatory EfficiencyView Methodology

The overall regulatory framework is relatively efficient, and the business start-up process has been streamlined. Completing licensing requirements is less costly but still takes more than 150 days. The minimum wage is one of the region’s highest. Monetary stability has been well maintained. The agricultural sector is highly subsidized by the state and through the EU’s Common Agricultural Policy.

Open MarketsView Methodology

EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. Luxembourg generally welcomes foreign investment. As a global financial hub, Luxembourg’s sophisticated banking sector is well capitalized and competitive. Regulations are transparent and effective. Many of the world’s leading banks have subsidiaries in Luxembourg.

Country's Score Over Time

Bar Graph of Luxembourg Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Luxembourg to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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