2018 Index of Economic Freedom

Taiwan

overall score76.6
world rank13
Rule of Law

Property Rights84.3

Government Integrity70.9

Judicial Effectiveness69.2

Government Size

Government Spending90.4

Tax Burden76.1

Fiscal Health90.8

Regulatory Efficiency

Business Freedom93.2

Labor Freedom54.9

Monetary Freedom83.3

Open Markets

Trade Freedom86.2

Investment Freedom60.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 23.5 million
  • GDP (PPP):
    • $1.1 trillion
    • 0.7% growth
    • 2.1% 5-year compound annual growth
    • $48,095 per capita
  • Unemployment:
    • 4.0%
  • Inflation (CPI):
    • 1.4%
  • FDI Inflow:
    • $8.3 billion
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Taiwan’s economic freedom score is 76.6, making its economy the 13th freest in the 2018 Index. Its overall score has increased by 0.1 point, with a lower score for investment freedom offset by a significant improvement in fiscal health. Taiwan is ranked 5th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

A relatively well-developed commercial code and open-market policies that facilitate the flow of goods and capital have enabled small and medium-size enterprises to become the backbone of Taiwan’s expansion. A sound legal framework protects property rights and upholds the rule of law. To achieve its goal of reducing dependence on China by increasing commerce with other Asian countries, Taiwan will need to make more reforms to increase competition and openness by, for example, reducing the state’s “strategic” involvement in the export sector and opening the fragmented financial sector.

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Background

Taiwan’s dynamic multiparty democracy was established under a 1947 constitution drawn up for all of China. Its economy is one of the wealthiest in Asia. The Democratic Progressive Party returned to power when Tsai Ing-wen was elected president in 2016. Taiwan relies heavily on its economic relationship with China but has shown resilience in the face of Chinese economic pressure. It still enjoys diplomatic recognition from 20 small countries and has representative offices in 58 others. Taiwan’s dynamic capitalist economy is driven largely by industrial manufacturing, especially exports of electronics, machinery, and petrochemicals. Major long-term challenges include diplomatic isolation, a low birth rate, a rapidly aging population, and increasing competition from China and other Asia–Pacific markets.

Rule of LawView Methodology

Property Rights 84.3 Create a Graph using this measurement

Government Integrity 70.9 Create a Graph using this measurement

Judicial Effectiveness 69.2 Create a Graph using this measurement

Contracts and interests in property are enforced, and Taiwan maintains a reliable recording system for mortgages and liens. The judiciary is independent, and the court system is largely free of political interference. Although corruption has been reduced, it remains a problem. Politics and big business are closely intertwined, and this leads to malfeasance in government procurement.

Government SizeView Methodology

The top personal income tax rate has been raised to 45 percent. The top corporate tax rate is 17 percent. Other taxes include value-added and interest taxes. The overall tax burden equals 8.7 percent of total domestic income. Over the past three years, government spending has amounted to 17.8 percent of total output (GDP), and budget deficits have averaged 2.1 percent of GDP. Public debt is equivalent to 35.4 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory environment is relatively transparent, but some regulations can be excessive or unevenly applied. Low wage growth has made talent recruitment and retention challenging for some businesses. Amendments to the Labor Standard Act have added to labor inflexibility. The law mandates price controls on electricity and salt, and the government regulates prices for fuels and pharmaceutical products. Other prices are largely determined by the market.

Open MarketsView Methodology

Taiwan’s average applied tariff rate is 1.9 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial sector offers a wide range of products and services but remains fragmented and susceptible to state interference. Renminbi-denominated financial services have been growing steadily since 2013.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.4
2Singapore88.80.2
3New Zealand84.20.5
4Australia80.9-0.1
5Taiwan76.60.1
6Malaysia 74.50.7
7South Korea73.8-0.5
8Japan72.32.7
9Macau70.90.2
10Vanuatu69.52.1
11Kazakhstan69.10.1
12Thailand 67.10.9
13Philippines65-0.6
14Azerbaijan64.30.7
15Indonesia64.22.3
16Brunei Darussalam64.2-5.6
17Tonga63.10.1
18Kyrgyz Republic 62.81.7
19Fiji62-1.4
20Bhutan61.83.4
21Samoa61.53.1
22Cambodia58.7-0.8
23Tajikistan58.30.1
24China57.80.4
25Sri Lanka57.80.4
26Solomon Islands57.52.5
27Mongolia55.70.9
28Papua New Guinea55.74.8
29Bangladesh 55.10.1
30India54.51.9
31Pakistan 54.41.6
32Nepal54.1-1.0
33Burma53.91.4
34Laos53.6-0.4
35Vietnam53.10.7
36Micronesia52.3-1.8
37Uzbekistan51.5-0.8
38Afghanistan51.32.4
39Maldives51.10.8
40Kiribati50.8-0.1
41Timor-Leste48.11.8
42Turkmenistan47.1-0.3
43North Korea5.80.9
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