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- GDP (PPP):
- $221.0 billion
- -0.1% growth
- 0.5% 5-year compound annual growth
- $40,347 per capita
- Inflation (CPI):
- FDI Inflow:
Finland has long benefited from open-market policies that support dynamic trade and investment. The regulatory environment encourages entrepreneurial activity and sustains a high degree of competitiveness. With an efficient legal framework that strongly upholds the rule of law, minimum tolerance for corruption is firmly institutionalized.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 72.6 (down 0.8 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 24th
- Regional Ranking: 13th in Europe
- Notable Successes: Rule of Law and Open Markets
- Concerns: Labor Freedom and Management of Public Finance
- Overall Score Change Since 2012: +0.3
Over the past five years, Finland’s economy has undergone slowdown and uncertainty. The soundness of public finance has deteriorated notably. Government spending accounts for over half of GDP and has proven to be a drag on the economy instead of a stimulus, and budget deficits continue to widen.
With about one-fourth of its land mass above the Arctic Circle, Finland is sparsely populated. Incoming Prime Minister Juha Sipila of the Centre Party formed a coalition with the Eurosceptic conservative Finns Party and center-right National Coalition Party following elections in April 2015. The coalition wants to reduce spending and unemployment, which is over 8 percent. Declining exports to Russia, its third largest trading partner, and declining business for key Finnish companies have affected the economy, currently in recession. Budget deficits and public debt are high. Finland joined the European Union in 1995 and adopted the euro in 1999. It became a member of NATO’s Partnership for Peace in 1994 and sits on the Euro–Atlantic Council. Recent Russian aggression against Ukraine has prompted renewed public debate about full NATO membership.
Corruption is not a significant problem in Finland, which was ranked third out of 175 countries surveyed in Transparency International’s 2014 Corruption Perceptions Index. Property rights are recognized and enforced effectively and extend to intellectual property as well as real property. Contractual agreements are strictly honored. The quality of the judiciary is generally high.
The top personal income tax rate is 31.8 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax and a tax on capital income. The overall tax burden equals 44 percent of total domestic income. Government spending amounts to 57.5 percent of GDP, and the budget deficit has been over 3 percent of GDP. Public debt equals approximately 60 percent of total domestic output.
The efficient and transparent regulatory framework encourages entrepreneurship. Launching a business takes only three procedures. The non-salary cost of employing a worker is high, but severance payments are not overly burdensome. The center-right, three-party coalition government formed in May 2015 was elected in part because of public demands to overhaul Finland’s extensive welfare state and cut subsidies.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. The government generally treats foreign and domestic investors equally. State-owned enterprises operate in several sectors. The well-developed financial system remains competitive and provides a wide range of services.