2021 Index of Economic Freedom

Canada

OVERALL SCORE77.9
WORLD RANK9
Rule of Law

Property Rights84.5

Judicial Effectiveness73.3

Government Integrity87.9

Government Size

Tax Burden76.0

Government Spending49.8

Fiscal Health84.2

Regulatory Efficiency

Business Freedom81.4

Labor Freedom72.4

Monetary Freedom76.1

Open Markets

Trade Freedom88.8

Investment Freedom80.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 37.6 million
  • GDP (PPP):
    • $1.9 trillion
    • 1.6% growth
    • 1.7% 5-year compound annual growth
    • $51,342 per capita
  • Unemployment:
    • 5.6%
  • Inflation (CPI):
    • 1.9%
  • FDI Inflow:
    • $50.3 billion

Canada’s economic freedom score is 77.9, making its economy the 9th freest in the 2021 Index. Its overall score has decreased by 0.3 point, primarily because of a decline in property rights. Canada is ranked 1st among 32 countries in the Americas region, and its overall score is above the regional and world averages.

This year, Canada’s economy remains in the ranks of the mostly free where it has been since it fell from the free category in 2015. The easiest way for the government to improve economic freedom would be to reduce government spending and thereby raise the very low score for that Index indicator. Reforming labor laws to create a more flexible labor market would increase labor freedom.

IMPACT OF COVID-19: As of December 1, 2020, 12,229 deaths had been attributed to the pandemic in Canada, and the economy was forecast to contract by 7.1 percent for the year.

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Background

Canada is the world’s second-largest country by land area and has its 10th-largest economy. Prime Minister Justin Trudeau’s Liberal Party managed to win a second term in office in October 2019 national elections despite a corruption scandal that tarnished Trudeau’s political brand. Although he remains in power, Trudeau was forced to form an inherently unstable minority government that could fall well before the next election, which is scheduled to be held 2023. Canada’s market-oriented economic system closely resembles that of the U.S. Leading sectors include automotive and other manufactures, forest products, minerals, and petroleum. About three-quarters of Canada’s exports are to the United States, so the new U.S.–Mexico–Canada Agreement that entered into force on July 1, 2020, is vital to Canada’s continued economic well-being.

Rule of LawView Methodology

Property Rights 84.5 Create a Graph using this measurement

Judicial Effectiveness 73.3 Create a Graph using this measurement

Government Integrity 87.9 Create a Graph using this measurement

Property rights are generally well protected by law and through the enforcement of contracts. Expropriation is highly unusual. The judiciary is independent, and courts are considered procedurally competent, fair, and reliable. Canada’s reputation for clean government with little corruption was tainted by scandal in 2020 when a government education contract kickback scheme was alleged to have involved members of the prime minister’s family.

Government SizeView Methodology

The top individual income tax rate is 33 percent, and the top corporate tax rate is 15 percent. Other taxes include value-added and property taxes. The overall tax burden equals 33.0 percent of total domestic income. Government spending has amounted to 40.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.3 percent of GDP. Public debt is equivalent to 88.6 percent of GDP.

Regulatory EfficiencyView Methodology

Business freedom in Canada is relatively unchanged and remains at a high level. However, the recovery rate during insolvency procedures has declined slightly. Labor laws vary by jurisdiction. There is a shortage of skilled trade professionals. In addition to subsidizing health care, the government funds large subsidies for a wide range of business sectors including energy and agriculture.

Open MarketsView Methodology

Canada has 15 preferential trade agreements in force. The trade-weighted average tariff rate is 3.1 percent, and 459 nontariff measures are in effect. Foreign investment in some sectors, including aviation and telecommunications, is capped by the government. The banking sector, dominated by six major banks, remains sound. A wide range of nonbank financial companies operate in a prudent regulatory environment.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada77.9-0.3
2Chile75.2-1.6
3United States74.8-1.8
4Uruguay69.30.2
5Jamaica690.5
6Colombia68.1-1.1
7Peru67.7-0.2
8Saint Lucia67.5-0.7
9Saint Vincent and the Grenadines66.3-0.5
10Panama66.2-1.0
11Mexico65.5-0.5
12Barbados653.6
13The Bahamas64.60.1
14Costa Rica64.2-1.6
15Guatemala640.0
16Paraguay62.6-0.4
17Dominican Republic62.11.2
18El Salvador61-0.6
19Honduras59.8-1.3
20Trinidad and Tobago590.7
21Belize57.50.1
22Guyana57.41.2
23Nicaragua56.3-0.9
24Brazil53.4-0.3
25Dominica53-7.8
26Argentina52.7-0.4
27Ecuador52.41.1
28Haiti50.8-1.5
29Suriname46.4-3.1
30Bolivia42.7-0.1
31Cuba28.11.2
32Venezuela24.7-0.5
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