2016 Index of Economic Freedom

Iceland

overall score73.3
world rank20
Rule of Law

Property Rights90.0

Freedom From Corruption79.0

Limited Government

Government Spending42.1

Fiscal Freedom73.3

Regulatory Efficiency

Business Freedom90.1

Labor Freedom61.6

Monetary Freedom79.5

Open Markets

Trade Freedom87.8

Investment Freedom70.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.3 million
  • GDP (PPP):
    • $14.2 billion
    • 1.8% growth
    • 1.1% 5-year compound annual growth
    • $43,637 per capita
  • Unemployment:
    • 5.0%
  • Inflation (CPI):
    • 2.0%
  • FDI Inflow:
    • $436.1 million
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Recovering from the acute 2008 banking crisis, Iceland has demonstrated a strong commitment to restoring the soundness of public finance and the credibility of its policies. Long-institutionalized regulatory efficiency and open-market policies underpin efforts to restore positive growth momentum. Widespread strikes over pay increases in the spring of 2015 threatened to undermine the recovery but did not stop the government from taking the first steps to ease capital controls in June.

Economic Freedom Snapshot

  • 2016 Economic Freedom Score: 73.3 (up 1.3 points)
  • Economic Freedom Status: Mostly Free
  • Global Ranking: 20th
  • Regional Ranking: 10th in Europe
  • Notable Successes: Rule of Law and Regulatory Efficiency
  • Concerns: Labor Freedom and Financial Freedom
  • Overall Score Change Since 2012: +2.4

The quality of the legal framework remains among the world’s highest, providing effective protection of property rights. The rule of law is well maintained, and a strong tradition of minimum tolerance for corruption is firmly in place.

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Background

The pro–European Union Social Democrats lost the April 2013 parliamentary elections. Sigmundur Davíð Gunnlaugsson of the Progressive Party was elected prime minister by a coalition of the Progressive Party and Independence Party. The new government indefinitely suspended accession talks with the EU in May 2013 and officially withdrew Iceland’s application in March 2015. Iceland already enjoys EU-related benefits that include free trade and movement of capital, labor, goods, and services within the region. Its membership in the Schengen Zone allows visa-free travel in 26 European countries. The economy is dependent on tourism and fishing. Unemployment is low, and economic growth accelerated in 2015.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 79.0 Create a Graph using this measurement

The institutionalization of accountability and transparency in Iceland results from 1,000 years of parliamentary government. Isolated cases of corruption are not an obstacle to foreign investment. Private property is well protected. Iceland has a solid legislative and institutional framework to enforce laws protecting intellectual property. The constitution provides for an independent judiciary, and trials are generally public and fair.

Limited GovernmentView Methodology

The top personal income tax rate is 31.8 percent, and the flat corporate rate is 20 percent. Other taxes include a value-added tax and an estate tax. The overall tax burden equals 35.5 percent of total domestic income. Government spending has fallen to 43.9 percent of total domestic output. The government has recorded its first budget surplus in seven years, and public debt is around 80 percent of GDP.

Regulatory EfficiencyView Methodology

The overall regulatory environment remains efficient and competitive. Labor regulations are rigid, with broad wage settlements and high unionization. Financial crises have occurred periodically, and the government has proposed a sovereign money system whereby the central bank would increase the money supply in proportion to growth and consistent with a mandated inflation target.

Open MarketsView Methodology

Iceland’s average tariff rate is 1.1 percent. The government restricts imports of meat and dairy products and caps investment levels in a few sectors of the economy, including energy and aviation. Iceland has restructured and recapitalized its banking system. The central bank has eased some of the restrictions on the movement of capital that were instituted following the financial turmoil in 2008.

Country's Score Over Time

Bar Graph of Iceland Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Iceland to other economic country groups Download Charts

Regional Ranking

rank country overall change
1Switzerland810.5
2Ireland77.30.7
3Estonia77.20.4
4United Kingdom76.40.6
5Denmark75.3-1.0
6Lithuania75.20.5
7The Netherlands74.60.9
8Germany74.40.6
9Luxembourg73.90.7
10Iceland73.31.3
11Czech Republic73.20.7
12Georgia72.6-0.4
13Finland72.6-0.8
14Sweden72-0.7
15Austria71.70.5
16Norway70.8-1.0
17Latvia70.40.7
18Poland69.30.7
19Cyprus68.70.8
20Spain68.50.9
21Belgium68.4-0.4
22Macedonia67.50.4
23Armenia67-0.1
24Malta66.70.2
25Slovakia66.6-0.6
26Hungary 66-0.8
27Albania65.90.2
28Bulgaria65.9-0.9
29Romania65.6-1.0
30Portugal65.1-0.2
31Montenegro64.90.2
32France62.3-0.2
33Serbia 62.12.1
34Turkey62.1-1.1
35Kosovo61.4N/A
36Italy61.2-0.5
37Slovenia60.60.3
38Croatia59.1-2.4
39Bosnia and Herzegovina58.6-0.4
40Moldova57.4-0.1
41Greece53.2-0.8
42Russia50.6-1.5
43Belarus48.8-1.0
44Ukraine46.8-0.1
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