- GDP (PPP):
- $354.9 billion
- 3.5% growth
- 3.4% 5-year compound annual growth
- $42,194 per capita
- Inflation (CPI):
- FDI Inflow:
Israel’s economic freedom score is 73.8, making its economy the 26th freest in the 2021 Index. Its overall score has decreased by 0.2 point, primarily because of a decline in fiscal health. Israel is ranked 2nd among 14 countries in the Middle East and North Africa region, and its overall score is above the regional and world averages.
The Israeli economy has maintained its ranking in the mostly free category this year. Since the inception of the Index in 1995, government spending has been the indicator that has consistently hindered greater economic freedom in the country. Spending cuts and other fiscal restraints would go a long way toward further liberating the private sector and encouraging even greater private investment.
IMPACT OF COVID-19: As of December 1, 2020, 2,877 deaths had been attributed to the pandemic in Israel, and the economy was forecast to contract by 5.9 percent for the year.
Israel won its war for independence in 1948, and its vibrant democracy remains unique in the region. Benjamin Netanyahu and Benny Gantz will each serve as prime minister for 18 months in a three-year unity government formed after 2019’s stalemated elections. Israel’s thriving high-technology sector attracts considerable foreign investment, and large offshore deposits of natural gas have improved its energy security and balance-of-payments prospects. Despite the 2006 war against Hezbollah in Lebanon, frequent military campaigns against Hamas in Gaza, and the constant threat of terrorism, Israel’s modern market economy is fundamentally sound and dynamic. Agreements signed by Israel in 2020 with Bahrain, the United Arab Emirates, Morocco, and Sudan should help normalize relationships and clear the way for greater trade, investment, tourism, and technological and strategic cooperation in the region.
Property rights are recognized and protected, and contracts are enforced, but property registration and titling procedures are cumbersome. Israel’s modern judicial system is independent and based on British common law. Bribery and other forms of corruption are illegal. A strong societal intolerance of graft undergirds the effectiveness of anticorruption laws and provides a strong foundation for economic freedom.
The top individual income tax rate is 50 percent (including a surtax), and the top corporate tax rate is 23 percent. Other taxes include value-added and capital gains taxes. The overall tax burden equals 31.1 percent of total domestic income. Government spending has amounted to 39.2 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.9 percent of GDP. Public debt is equivalent to 61.4 percent of GDP.
Israel now allows businesses to register for the corporate tax and value-added tax jointly. A well-educated labor force helps to boost productivity. The government offers subsidies to foreign investors, and populist-leaning price controls have been in place for many years for basic foods, medicines, gasoline, and basic banking services.
Israel has eight preferential trade agreements in force. The trade-weighted average tariff rate is 2.9 percent, and 92 nontariff measures are in effect. Economic competitiveness has been facilitated by a general openness to foreign investment. Banking remains concentrated, but commercial banks offer a range of financial services that support the private sector. The adoption of lower capital reserve requirements in 2020 eased financial conditions for banks.