2018 Index of Economic Freedom

Czech Republic

overall score74.2
world rank24
Rule of Law

Property Rights73.0

Government Integrity51.1

Judicial Effectiveness57.9

Government Size

Government Spending48.6

Tax Burden82.9

Fiscal Health96.2

Regulatory Efficiency

Business Freedom72.5

Labor Freedom76.8

Monetary Freedom85.2

Open Markets

Trade Freedom86.9

Investment Freedom80.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 10.6 million
  • GDP (PPP):
    • $350.7 billion
    • 4.2% growth
    • 1.7% 5-year compound annual growth
    • $33,232 per capita
  • Unemployment:
    • 4.0%
  • Inflation (CPI):
    • 0.7%
  • FDI Inflow:
    • $6.8 billion
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The Czech Republic’s economic freedom score is 74.2, making its economy the 24th freest in the 2018 Index. Its overall score has increased by 0.9 point, with improvements in business freedom, fiscal health, and government spending outweighing a decline in government integrity. The Czech Republic is ranked 13th among 44 countries in the Europe region, and its overall score is above the regional and world averages.

Although populist, antiestablishment political parties are on the rise, the new government is expected to continue pro-EU, pro-business, and fiscally prudent policies. Previous governments’ implementation of critical reforms in many areas has created a vibrant private sector. Business start-up procedures are streamlined, a relatively efficient tax regime facilitates entrepreneurial growth, and openness to global trade and investment has been fully institutionalized. Contributing to overall stability and competitiveness, a relatively sound legal framework sustains judicial effectiveness and government integrity.

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Background

Czechoslovakia’s Communist dictatorship ended in 1989 with the “Velvet Revolution” and the election of dissident playwright Vaclav Havel as president. The Czech Republic gained full independence from Slovakia in 1993 and joined NATO in 1999 and the European Union in 2004. In 2013, Miloš Zeman of the center-left Czech Social Democrat Party (CSSD) became the country’s first directly elected president. The centrist ANO movement, led by billionaire former Finance Minister Andrej Babis, capitalized on public dissatisfaction with EU membership and soundly defeated the CSSD and other parties in October 2017 legislative elections. The Czech Republic’s prosperous market economy, led by automobile exports, boasts one of the EU’s highest GDP growth rates and lowest unemployment levels.

Rule of LawView Methodology

Property Rights 73.0 Create a Graph using this measurement

Government Integrity 51.1 Create a Graph using this measurement

Judicial Effectiveness 57.9 Create a Graph using this measurement

Contracts are generally secure, and property rights are relatively well protected. The judiciary’s independence is largely respected, although its complexity and multilayered composition lead to the slow delivery of judgments. The law provides criminal penalties for corruption by officials. The government generally implements the laws effectively, although officials sometimes engage in corrupt practices with impunity.

Government SizeView Methodology

The individual income tax rate is a flat 15 percent, and the standard corporate tax rate is 19 percent. Other taxes include value-added and inheritance taxes. The overall tax burden equals 33.5 percent of total domestic income. Over the past three years, government spending has amounted to 41.4 percent of total output (GDP), and budget deficits have averaged 0.8 percent of GDP. Public debt is equivalent to 37.7 percent of GDP.

Regulatory EfficiencyView Methodology

The Czech Republic made starting a business easier in 2016 by reducing court costs and time spent in courts and allowing notaries to register their companies online. With the economy near full employment, wages have been rising about 5 percent annually for several years. Monetary policy began to normalize when an exchange rate floor that had been in place for over three years was removed in April 2017.

Open MarketsView Methodology

Trade is extremely important to the Czech Republic’s economy; the combined value of exports and imports equals 153 percent of GDP. The average applied tariff rate is 1.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The relatively well-regulated financial market continues to grow steadily. The competitive and resilient banking sector offers a wide range of financial products.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.70.2
2Ireland80.43.7
3Estonia78.8-0.3
4United Kingdom781.6
5Iceland772.6
6Denmark76.61.5
7Luxembourg76.40.5
8Sweden76.31.4
9Georgia76.20.2
10Netherlands76.20.4
11Lithuania75.3-0.5
12Norway74.30.3
13Czech Republic74.20.9
14Germany74.20.4
15Finland74.10.1
16Latvia73.6-1.2
17Austria71.8-0.5
18Macedonia71.30.6
19Romania69.4-0.3
20Armenia68.7-1.6
21Poland68.50.2
22Malta68.50.8
23Bulgaria68.30.4
24Cyprus67.8-0.1
25Belgium67.5-0.3
26Hungary 66.70.9
27Kosovo66.6-1.3
28Turkey65.40.2
29Slovakia65.3-0.4
30Spain65.11.5
31Slovenia64.85.6
32Albania64.50.1
33Montenegro64.32.3
34France63.90.6
35Portugal63.40.8
36Italy62.50.0
37Serbia 62.53.6
38Bosnia and Herzegovina61.41.2
39Croatia611.6
40Moldova58.40.4
41Russia58.21.1
42Belarus58.1-0.5
43Greece57.32.3
44Ukraine51.93.8
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