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- GDP (PPP):
- $38.5 billion
- 1.1% growth
- 2.3% 5-year compound annual growth
- $29,313 per capita
- Inflation (CPI):
- FDI Inflow:
Estonia’s economic freedom score is 78.8, making its economy the 7th freest in the 2018 Index. Its overall score has decreased by 0.3 point, with lower scores for the government spending, property rights, and labor freedom indicators outpacing an improvement in government integrity. Estonia is ranked 3rd among 44 countries in the Europe region, and its overall score is above the regional and world averages.
Successive governments have pursued a free-market, pro-business economic agenda and sound fiscal policies that have resulted in balanced budgets, low public debt, and greater economic freedom. The rule of law remains strongly buttressed and enforced by an independent and efficient judicial system. A simplified tax system with flat rates and low indirect taxation, openness to foreign investment, and a liberal trade regime support a resilient and well-functioning economy. Management of public finance has been notably prudent and sound.
Estonia regained independence from the Soviet Union in 1991. It is a stable multiparty democracy. It joined NATO and the European Union in 2004 and the Organisation for Economic Co-operation and Development in 2010. In 2011, it became the first former Soviet state to adopt the euro. In 2014, Estonia became the world’s first country to issue “E-Residency” status to noncitizens, making it easier to do business in Estonia. Jüri Ratas, leader of the left-leaning Centre Party, became prime minister in November 2016 after his party’s coalition in parliament defeated the center-right, pro-market Reform Party of former Prime Minister Taavi Rõivas. The economy relies on robust electronics and telecommunications sectors and strong regional trade ties.
Contracts and secured interests in property are recognized and enforced. Commercial codes are applied consistently. The judiciary is independent and well insulated from government influence, although some business leaders complain that the courts are overburdened and too slow. The law provides criminal penalties for corruption by officials, and the government has effective mechanisms to investigate and punish abusers.
The top personal income and corporate tax rates are 20 percent. Undistributed profits are not taxed. Other taxes include value-added and excise taxes. The overall tax burden equals 33.6 percent of total domestic income. Over the past three years, government spending has amounted to 39.8 percent of total output (GDP), and budget surpluses have averaged 0.4 percent of GDP. Public debt is equivalent to 9.5 percent of GDP.
Estonia’s transparent regulatory environment enhances business freedom. Due to the relatively low level of unemployment, it is sometimes difficult for employers to find workers to hire. Improving public-sector worker efficiency is one of the government’s goals. The government increased some pension and agricultural subsidies in 2017 but generally avoids distortionary economic interventions.
Trade is extremely important to Estonia’s economy; the combined value of exports and imports equals 155 percent of GDP. The average applied tariff rate is 1.6 percent. In general, government policies do not significantly deter foreign investment. The financial sector has an efficient supervisory framework. With little state intervention, the banking sector provides a wide range of financial services. Nonperforming loans represent about 4 percent of total loans.