2021 Index of Economic Freedom

Croatia

OVERALL SCORE63.6
WORLD RANK79
Rule of Law

Property Rights68.4

Judicial Effectiveness41.1

Government Integrity51.4

Government Size

Tax Burden79.0

Government Spending35.8

Fiscal Health89.6

Regulatory Efficiency

Business Freedom56.2

Labor Freedom43.6

Monetary Freedom78.7

Open Markets

Trade Freedom84.0

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 4.1 million
  • GDP (PPP):
    • $112.6 billion
    • 2.9% growth
    • 2.9% 5-year compound annual growth
    • $29,973 per capita
  • Unemployment:
    • 6.9%
  • Inflation (CPI):
    • 0.8%
  • FDI Inflow:
    • $1.4 billion

Croatia’s economic freedom score is 63.6, making its economy the 79th freest in the 2021 Index. Its overall score has increased by 1.4 points, primarily because of an improvement in the tax burden score. Croatia is ranked 38th among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.

Again in 2021, Croatia’s economy moved a little higher in the moderately free category and set a new record high for its economic freedom. For further progress, the government needs to accelerate implementation of its long-delayed structural reform package so that it can sell off burdensome state companies and reduce government spending. Further improvements are also needed in the judicial system and labor laws.

IMPACT OF COVID-19: As of December 1, 2020, 1,861 deaths had been attributed to the pandemic in Croatia, and the economy was forecast to contract by 9.0 percent for the year.

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Background

Croatia’s declaration of independence in 1991 contributed to the breakup of Yugoslavia along ethnic and religious lines. Croatia joined NATO in 2009 and the European Union in 2013. Prime Minister Andrej Plenkovic’s center-right Croatian Democratic Union (HDZ) won the most seats in July 2020 elections and formed a coalition with the liberal Croatian People’s Party, the People’s Party–Reformists, and representatives of national minorities. The coalition seeks to increase the minimum wage and invest in Croatia’s health care system while also cutting taxes. Shipbuilding and tourism are major industries. A weak export base, emigration, labor shortages, and the slow pace of privatization remain significant challenges. A new liquid natural gas import terminal at Krk Island should be operational in 2021.

Rule of LawView Methodology

Property Rights 68.4 Create a Graph using this measurement

Judicial Effectiveness 41.1 Create a Graph using this measurement

Government Integrity 51.4 Create a Graph using this measurement

Private property rights are well established, but conflicting claims and legal ambiguity can cloud some title cases. Judicial independence is generally respected. Although reforms are underway, investors often face problems connected with lengthy court procedures, contract enforcement, and judicial efficiency. Transparency International reports that public-sector corruption in Croatia is perceived as widespread and getting worse.

Government SizeView Methodology

The top individual income tax rate has been reduced to 36 percent, and the top corporate tax rate is 18 percent. Other taxes include value-added and excise taxes. The overall tax burden equals 22.0 percent of total domestic income. Government spending has amounted to 46.3 percent of total output (GDP) over the past three years, and budget surpluses have averaged 0.3 percent of GDP. Public debt is equivalent to 72.0 percent of GDP.

Regulatory EfficiencyView Methodology

Director signatures for company registration are no longer required, and both the paid-in minimum capital requirement and the water contribution for building a warehouse have been reduced. Compared to most of the rest of Europe, the hiring or firing of employees is costly. The government has made little progress in reducing subsidies and privatizing loss-making state-owned enterprises.

Open MarketsView Methodology

As a member of the EU, Croatia has 45 preferential trade agreements in force. The trade-weighted average tariff rate (common among EU members) is 3 percent, with 639 EU-mandated nontariff measures in force. Croatia has an additional eight country-specific nontariff barriers. Foreign investment faces no restrictive screening. Financial markets are open to foreign investment, and foreign-owned banks dominate the banking sector.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland81.9-0.1
2Ireland81.40.5
3United Kingdom78.4-0.9
4Estonia78.20.5
5Denmark77.8-0.5
6Iceland77.40.3
7Georgia77.20.1
8Lithuania76.90.2
9Netherlands76.8-0.2
10Finland76.10.4
11Luxembourg760.2
12Sweden74.7-0.2
13Austria73.90.6
14Czech Republic73.8-1.0
15Norway73.40.0
16Germany72.5-1.0
17Latvia72.30.4
18Armenia71.91.3
19Cyprus71.41.3
20Bulgaria70.40.2
21Malta70.20.7
22Belgium70.11.2
23Azerbaijan70.10.8
24Spain69.93.0
25Poland69.70.6
26Romania69.5-0.2
27North Macedonia68.6-0.9
28Slovenia68.30.5
29Portugal67.50.5
30Serbia 67.21.2
31Hungary67.20.8
32Kosovo66.5-0.9
33Slovak Republic66.3-0.5
34France65.7-0.3
35Albania65.2-1.7
36Italy64.91.1
37Turkey64-0.4
38Croatia63.61.4
39Montenegro63.41.9
40Bosnia and Herzegovina62.90.3
41Moldova62.50.5
42Russia61.50.5
43Belarus61-0.7
44Greece60.91.0
45Ukraine56.21.3
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