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Quick Facts
- Population:
- GDP (PPP):
- $62.7 billion
- 3.5% growth
- 3.8% 5-year compound annual growth
- $106,374 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Luxembourg’s economic freedom score is 75.9, making its economy the 17th freest in the 2019 Index. Its overall score has decreased by 0.5 point, with declines in judicial effectiveness and monetary freedom overwhelming an improvement in government integrity. Luxembourg is ranked 9th among 44 countries in the Europe region, and its overall score is above the regional and world averages.
Luxembourg is one of the world’s wealthiest countries. It has one of the eurozone’s highest current-account surpluses as a share of GDP, maintains a healthy budgetary position, and has the region’s lowest level of public debt. Economic competitiveness is sustained by the solid institutional foundations of an open-market system. The judiciary, independent and free of corruption, protects property rights and upholds the rule of law. High levels of regulatory transparency and efficiency encourage entrepreneurial activity. The government is seeking to enhance the country’s status as an international financial center in 2019.
Background
A founding member of the European Union in 1957 and of the eurozone in 1999, the small Grand Duchy of Luxembourg continues to promote European integration. Democratic Party Prime Minister Xavier Bettel’s three-party left-leaning coalition barely held on to power in October 2018 elections. Luxembourgers enjoy high levels of prosperity, although the global economic crisis provoked the first recession in 60 years in 2009. Growth is strong, and unemployment remains below the EU average. During the 20th century, Luxembourg evolved into a mixed manufacturing and services economy with strong financial services. With its low energy costs, reliable electricity grid, and stable governance, the country is attracting interest as a hub for the new information economy of the 21st century.
The legal system protects and facilitates the acquisition and disposition of all property rights, such as land and buildings, based on a land registry cadaster. The open and transparent economy has no restrictions on foreign ownership. Contracts are secure. The judiciary is independent, and a well-functioning legal framework strongly supports the rule of law. Laws, regulations, and penalties are enforced impartially to combat corruption.
The top individual income tax rate is 42 percent, and the top corporate tax rate has been reduced from 19 percent to 18 percent. The overall tax burden equals 37.1 percent of total domestic income. Over the past three years, government spending has amounted to 42.2 percent of the country’s output (GDP), and budget surpluses have averaged 1.5 percent of GDP. Public debt is equivalent to 23.0 percent of GDP.
The overall freedom to start, operate, and close a business is relatively well protected under the transparent regulatory environment. However, labor regulations continue to be costly, with quite generous unemployment benefits and high minimum wages. Monetary stability has been well maintained. The agricultural sector is highly subsidized, and the government maintains Europe’s highest rate of fuel subsidies per capita.
The combined value of exports and imports is equal to 424.0 percent of GDP. The average applied tariff rate is 2.0 percent. Luxembourg implements a number of EU-directed nontariff trade barriers including technical and product-specific regulations, subsidies, and quotas. Overall investment activity is sustained by solid institutional foundations for an open-market system. The sophisticated financial sector is well capitalized and competitive.