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- GDP (PPP):
- $51.4 billion
- 2.9% growth
- 2.5% 5-year compound annual growth
- $92,049 per capita
- Inflation (CPI):
- FDI Inflow:
Sustaining a competitive business environment, Luxembourg continues to be economically resilient with well-functioning institutions. The legal framework remains among the world’s best, 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.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 73.9 (up 0.7 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 19th
- Regional Ranking: 9th in Europe
- Notable Successes: Rule of Law and Open Markets
- Concerns: Management of Public Finance and Labor Freedom
- Overall Score Change Since 2012: –0.6
A founding member of the European Union in 1957 and the eurozone in 1999, the Grand Duchy of Luxembourg continues to promote European integration. Prime Minister Xavier Bettel of the Democratic Party was elected in December 2013, defeating the Christian Social People’s Party that had been in power since 1979. Luxembourgers have one of the world’s highest income levels, although the global economic crisis provoked the first recession in 60 years in 2009. During the 20th century, Luxembourg evolved into a mixed manufacturing and services economy with a strong financial services sector. The government is trying to diversify the economy by promoting Luxembourg as an information technology and e-commerce hub. The country has a skilled workforce and well-developed infrastructure.
Luxembourg has the legal infrastructure to combat corruption effectively. Laws are enforced impartially. The judiciary is independent, and social norms and customs strongly support the rule of law. Private property rights are well protected, and contracts are secure. Adequate steps have been taken to implement the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.
The top individual income tax rate is 43.6 percent, and the top corporate tax rate is 21 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 39.3 percent of total domestic income. Government spending amounts to 43.6 percent of GDP. The budget balance is slightly in surplus. Public debt equals less than 25 percent of total annual domestic output.
The efficient regulatory framework supports entrepreneurial activity. Business formation and operation take place without bureaucratic interference. The labor market lacks flexibility, and the minimum wage is one of the region’s highest. Monetary stability is well maintained. The agricultural sector is highly subsidized, both by the government and through the EU’s Common Agricultural Policy.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. Foreign and domestic investors are generally treated equally under the law. Luxembourg continues to be one of the world’s most resilient financial centers. Its highly competitive financial sector remains stable and well capitalized, providing a wide range of financing options.