2021 Index of Economic Freedom

Taiwan

OVERALL SCORE78.6
WORLD RANK6
Rule of Law

Property Rights87.3

Judicial Effectiveness72.9

Government Integrity74.5

Government Size

Tax Burden79.2

Government Spending91.0

Fiscal Health93.7

Regulatory Efficiency

Business Freedom93.4

Labor Freedom60.4

Monetary Freedom84.3

Open Markets

Trade Freedom86.0

Investment Freedom60.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 23.6 million
  • GDP (PPP):
    • $1.3 trillion
    • 2.7% growth
    • 2.5% 5-year compound annual growth
    • $55,527 per capita
  • Unemployment:
    • 3.7%
  • Inflation (CPI):
    • 0.5%
  • FDI Inflow:
    • $8.2 billion

Taiwan’s economic freedom score is 78.6, making its economy the 6th freest in the 2021 Index. Its overall score has increased by 1.5 points, primarily because of an improvement in government integrity. Taiwan is ranked 4th among 40 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

This year, Taiwan’s economy turned in its best performance in the 27-year history of the Index, inching closer to the ranks of the free than ever before. The main problem holding Taiwan back from the top economic freedom category remains the continuing relative lack of labor freedom. Despite the possibility of further damage to productivity and flexibility for workers, the government increased the minimum wage again in 2020.

IMPACT OF COVID-19: As of December 1, 2020, seven deaths had been attributed to the pandemic in Taiwan, and the economy was not expected to experience any growth for the year.

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Background

Taiwan’s dynamic multiparty democracy operates under a 1947 constitution that was drawn up originally to include all of China. Its economy is one of the wealthiest in Asia. The Democratic Progressive Party (DPP) returned to power when Tsai Ing-wen was elected president in 2016. Amid the backdrop of the 2019–2020 Hong Kong protests and threats from China, President Tsai secured reelection in a landslide victory in 2020. China’s ongoing attempts to isolate Taiwan diplomatically threaten both the country’s long-term political autonomy and its ability to maintain its presence in overseas markets. Taiwan’s trade dependent economy is driven by a competitive manufacturing sector that encompasses electronics, machinery, petrochemicals, and information and communication technology products.

Rule of LawView Methodology

Property Rights 87.3 Create a Graph using this measurement

Judicial Effectiveness 72.9 Create a Graph using this measurement

Government Integrity 74.5 Create a Graph using this measurement

Interests in property are protected, and the system for recording mortgages and liens is reliable. Enforcement of contracts is strong. The judiciary is independent, and the court system is largely free of political interference. Taiwan has implemented laws, regulations, and penalties to combat corruption, including in public procurement. While corruption is much less prevalent today, it remains a problem, especially because politics and big business are closely intertwined.

Government SizeView Methodology

The top individual income tax rate is 40 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax. The overall tax burden equals 8.9 percent of total domestic income. Government spending has amounted to 17.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.7 percent of GDP. Public debt is equivalent to 28.2 percent of GDP.

Regulatory EfficiencyView Methodology

The level of business freedom in Taiwan is among the highest in the world, surpassing a score of 90 every year since 2013. The labor force is shrinking due to the aging of the population, and there is a shortage of blue-collar manufacturing workers. Among other subsidies, the government funds research and development grants to encourage its high-technology firms to forge partnerships with foreign companies.

Open MarketsView Methodology

Taiwan has six preferential trade agreements in force. The trade-weighted average tariff rate is 2.0 percent, and 380 nontariff measures are in effect. Some agricultural imports face additional barriers. A relatively well-developed investment framework facilitates the flow of goods and capital. The financial sector continues to evolve and expand, and the stock market is open to foreign participation.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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