Heritage Index of Economic Freedom 2011: Luxembourg ranks third in the EU
The Heritage Foundation, in cooperation with the Wall Street Journal, has just published its 2011 Index of Economic Freedom. This survey compares the levels of trade, business, fiscal, monetary, financial, labour and investment freedom in 179 countries. Luxembourg is ranked 13th worldwidewith a score of 76.2 (up 0.8 on last year). Within the European region, Luxembourg is fourth out of 43 countries, behind Switzerland and fellow EU states Ireland and Denmark, but ahead of the UK (16th), Germany (23rd) and France (64th).
What the report says about Luxembourg
"Luxembourg has long benefited from a favourable climate for entrepreneurial activity and high levels of openness and flexibility. Prudent financial regulations have supported Luxembourg’s position as a global financial hub. The judiciary, independent of politics and free of corruption, has provided strong protection for property rights. Institutional support for investment freedom, trade freedom, financial freedom, and business freedom is similarly strong.
The economy performs weakly in such areas as fiscal freedom, government spending, and labour freedom. Personal tax rates remain high, although the corporate rate is relatively low. Government expenditure accounts for close to 40 percent of GDP. The government is undertaking gradual reforms to improve the management of public finance. Recent stimulus measures and support for the banking sector have resulted in an increased budget deficit. Fiscal reforms are needed to rationalise the large central government deficit, accommodate rising age-related spending, and preserve fiscal sustainability.”
Where we do well …
“Luxembourg does not discriminate between foreign and domestic investment. Most industries are open to foreign investment without any government restrictions. Bureaucratic procedures, including those for licenses and permits, are streamlined and transparent, and there is far less red tape than in larger European countries. Both residents and non-residents may hold foreign exchange accounts. There are no restrictions or barriers with respect to capital transactions, current transfers, repatriation of profits, purchase of real estate, or access to foreign exchange.”
“As a global financial hub, Luxembourg’s sophisticated banking sector is well capitalised and competitive. Regulations are transparent and effective. Many of the world’s leading banks have subsidiaries in Luxembourg. The one state-owned bank offers medium-term and long-term financing of investments by Luxembourg-based companies. The financial sector accounts for almost 30 percent of the country’s GDP.
The investment fund industry has been expanding rapidly. Capital markets are well developed, and trading on the Luxembourg Stock Exchange is very active. The financial system has been under stress in light of the recent global financial crisis, and the government of Luxembourg joined several other European governments in bailing out prominent banks.”
“Private property is well protected, and contracts are secure. Luxembourg adheres to key international agreements on intellectual property rights and protects patents, copyrights, trademarks, and trade secrets.”
Freedom from corruption
“Corruption is perceived as minimal. Luxembourg ranks 12th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. Anti-corruption laws, regulations, and penalties are enforced impartially, and efforts to combat money laundering and the financing of terrorism are a priority.”
… and where we could do better.
“Luxembourg’s labor regulations are burdensome. Unemployment benefits are almost twice as high as those in neighboring countries. The minimum wage is one of the highest in the OECD and labour union membership stands at over 50 percent of all wage earners.”
In case you were afraid to ask …
Q. What is economic freedom?
Economic freedom is the fundamental right of every human to control his or her own labour and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labour, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
Q. What are the benefits of economic freedom?
Studies in this and previous editions of the Index of Economic Freedom demonstrate important relationships between economic freedom and positive social and economic values such as per capita income, economic growth rates, human development, democracy, the elimination of poverty, and environmental protection. ER