2021 Index of Economic Freedom

Estonia

OVERALL SCORE78.2
WORLD RANK8
Rule of Law

Property Rights81.8

Judicial Effectiveness80.8

Government Integrity86.4

Government Size

Tax Burden81.0

Government Spending54.4

Fiscal Health99.6

Regulatory Efficiency

Business Freedom72.7

Labor Freedom57.8

Monetary Freedom79.7

Open Markets

Trade Freedom84.0

Investment Freedom90.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 1.3 million
  • GDP (PPP):
    • $47.8 billion
    • 4.3% growth
    • 3.9% 5-year compound annual growth
    • $38,811 per capita
  • Unemployment:
    • 5.1%
  • Inflation (CPI):
    • 2.3%
  • FDI Inflow:
    • $3.0 billion

Estonia’s economic freedom score is 78.2, making its economy the 8th freest in the 2021 Index. Its overall score has increased by 0.5 point, primarily because of an improvement in judicial effectiveness. Estonia is ranked 4th among 45 countries in the Europe region, and its overall score is above the regional and world averages.

The economy of Estonia remains in the mostly free category where it has been since 2001. The biggest obstacles to the country’s ascendance to the exclusive ranks of the free are its relatively low scores on the Index indicators for government spending and labor freedom. Reforms that address high levels of government spending and lingering rigidities in labor regulations would promote investment and improve productivity.

IMPACT OF COVID-19: As of December 1, 2020, 121 deaths had been attributed to the pandemic in Estonia, and the economy was forecast to contract by 5.2 percent for the year.

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Background

Estonia has been independent since 1991 and has become 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 2010, it also became the first former Soviet state to adopt the euro. The center-right, pro-market Reform Party won the most seats in March 2019 elections but failed to form a coalition. Jüri Ratas, leader of the left-leaning Centre Party, remained prime minister, leading a coalition with the nationalist Conservative People’s Party of Estonia and the center-right Isamaa. The economy relies on robust electronics and telecommunications sectors and strong regional trade ties. Security concerns related to Chinese involvement led to the scrapping of a planned Baltic Sea tunnel.

Rule of LawView Methodology

Property Rights 81.8 Create a Graph using this measurement

Judicial Effectiveness 80.8 Create a Graph using this measurement

Government Integrity 86.4 Create a Graph using this measurement

Property rights and contracts are recognized, secure, and well enforced. Expropriations in the public interest are permitted, and compensation is provided based on market value. Commercial codes are applied consistently. The judiciary is independent and well insulated from political influence. Effective mechanisms exist to investigate and punish abuse and incidents of official corruption, which are isolated. Corruption is still a problem in some areas of the private sector.

Government SizeView Methodology

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 33.2 percent of total domestic income. Government spending has amounted to 39.0 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.4 percent of GDP. Public debt is equivalent to 8.4 percent of GDP.

Regulatory EfficiencyView Methodology

Estonia’s business freedom has declined slightly this year, primarily because of a lower recovery rate when resolving insolvency. Strict government enforcement of intrusive labor laws limits labor freedom. The government is trying to improve the targeting of subsidies for education, health care, and energy, the cost of which is equivalent to 0.4 percent of GDP in the 2020 budget.

Open MarketsView Methodology

As a member of the EU, Estonia 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. Estonia has an additional six country-specific nontariff barriers. The economy has long benefited from openness to foreign investment, facilitated by a transparent investment regime. The financial sector remains stable and continues to expand.

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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