Download PDF
Quick Facts
- Population:
- GDP (PPP):
- $231.4 billion
- 0.4% growth
- -0.2% 5-year compound annual growth
- $42,165 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Embed This Data
Finland’s economic freedom score is 74.1, making its economy the 26th freest in the 2018 Index. Its overall score has increased by 0.1 point, with improvements in the fiscal health and government spending indicators outweighing declines in labor freedom and property rights. Finland is ranked 15th among 44 countries in the Europe region, and its overall score is above the regional and world averages.
Were it not for extraordinarily high levels of government spending, Finland would likely rank among the world’s 10 freest economies. The government’s main challenges now are to restore fiscal sustainability and reduce high labor costs, boosting productivity in traditional industries and demand for exports. The quality of the legal framework is among the world’s highest, providing effective protection of property rights. The rule of law is well maintained, and a strong tradition of minimum tolerance for corruption continues.
Background
Formerly part of Sweden and later the Russian Empire, Finland gained independence in 1917, joined the European Union in 1995, and adopted the euro in 1999. Prime Minister Juha Sipilä of the Center Party formed a coalition with the Eurosceptic conservative Finns Party and center-right National Coalition Party following elections in 2015. In 2017, after the Finns Party split in two, a newly formed New Alternative Group kept the coalition from collapsing. The economy centers on manufacturing, principally in the wood, metals, telecommunications, and electronics industries. Exports account for over one-third of GDP and have been negatively affected by sanctions on Russia’s struggling economy. Growth has also been hampered by an aging population and the decline of key companies.
Finland maintains one of the world’s strongest regimes for the protection of property rights and adheres to many international agreements that aim to protect intellectual property. Contractual agreements are strictly honored. The quality of the judiciary is generally high. Corruption is not a significant problem in Finland, which was ranked third out of 176 countries surveyed in Transparency International’s 2016 Corruption Perceptions Index.
The top personal income tax rate is 31.8 percent, and the top corporate tax rate is 20 percent. Other taxes include value-added and capital income taxes. The overall tax burden equals 44.0 percent of total domestic income. Over the past three years, government spending has amounted to 57.1 percent of total output (GDP), and budget deficits have averaged 2.6 percent of GDP. Public debt is equivalent to 63.6 percent of GDP.
The efficient business framework is conducive to innovation and productivity growth. Labor regulations remain rigid. The severance payment scheme is still costly, despite incremental reforms in 2016. Approximately 90 percent of employees engage in collective bargaining. Implementation of the center-right government’s reform plan to reduce subsidies has slowed as populist anti-austerity sentiment has grown.
Trade is significant for Finland’s economy; the combined value of exports and imports equals 72 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. State-owned enterprises operate in several sectors. The well-developed financial system remains competitive and provides a wide range of services.