stonia’s economic freedom score is 78.2, making its economy the 8th E freest in the 2021 Index. Its overall score has increased by 0.5 point, primarily because of an improvement in judicial effectiveness. Estonia WORLD RANK: REGIONAL RANK: is ranked 4th among 45 countries in the Europe region, and its overall score is above the regional and world averages.
8 4 The economy of Estonia remains in the mostly free category where it has ECONOMIC FREEDOM STATUS: been since 2001. The biggest obstacles to the country’s ascendance to MOSTLY FREE the exclusive ranks of the free are its relatively low scores on the Index indicators for government spending and labor freedom. Reforms that address high levels of government spending and lingering rigidities in labor regulations would promote investment and improve productivity.
IMPACT OF COVID-19: As of December 1, 2020, 121 deaths had been attributed to the pandemic in Estonia, and the economy was forecast to contract by 5.2 percent for the year.
ECONOMIC FREEDOM SCORE
▲ UP 0.5 POINT 78.2
0 50 60 70 80 100 REGIONAL WORLD AVERAGE AVERAGE 61.6 70.1 (EUROPE REGION)
HISTORICAL INDEX SCORE CHANGE (SINCE 1995): +13.0
RECENT FREEDOM TREND QUICK FACTS
POPULATION: UNEMPLOYMENT: 1.3 million 5.1% 79.1 78.8 77.7 78.2 76.6 GDP (PPP): INFLATION (CPI): $47.8 billion 2.3% 4.3% growth in 2019
5-year compound FDI INFLOW: $3.0 billion annual growth 3.9% $38,811 per capita PUBLIC DEBT: 8.4% of GDP
2019 data unless otherwise noted. Data compiled as of September 2020
BACKGROUND: Estonia has been independent since 1991 and has become a stable multiparty democ- racy. It joined NATO and the European Union in 2004 and the Organisation for Economic Co-operation and Development in 2010. In 2010, it also became the first former Soviet state to adopt the euro. The center-right, pro-market Reform Party won the most seats in March 2019 elections but failed to form a coalition. Jüri Ratas, leader of the left-leaning Centre Party, remained prime minister, leading a coalition with the nationalist Conservative People’s Party of Estonia and the center-right Isamaa. The economy relies on robust electronics and telecommunications sectors and strong regional trade ties. Security concerns related to Chinese involvement led to the scrapping of a planned Baltic Sea tunnel.
184 2021 Index of Economic Freedom WORLD AVERAGE | ONE-YEAR SCORE CHANGE IN PARENTHESES 12 ECONOMIC FREEDOMS | ESTONIA
RULE OF LAW GOVERNMENT SIZE
(–1.4) (+7.1) (+0.5) (–0.1) (+1.1) (–0.3)
81.8 80.8 86.4 81.0 54.4 99.6 Property Judicial Government Tax Government Fiscal Rights E ectiveness Integrity Burden Spending Health
Property rights and contracts are recognized, secure, and well The top personal income and corporate tax rates are 20 enforced. Expropriations in the public interest are permit- percent. Undistributed profits are not taxed. Other taxes ted, and compensation is provided based on market value. include value-added and excise taxes. The overall tax burden Commercial codes are applied consistently. The judiciary is equals 33.2 percent of total domestic income. Government independent and well insulated from political influence. Effec- spending has amounted to 39.0 percent of total output (GDP) tive mechanisms exist to investigate and punish abuse and over the past three years, and budget deficits have averaged incidents of official corruption, which are isolated. Corruption 0.4 percent of GDP. Public debt is equivalent to 8.4 percent
.is still a problem in some areas of the private sector. of GDP
REGULATORY EFFICIENCY OPEN MARKETS
(–0.8) (+0.5) (+1.1) (–2.4) (No change) (No change)
72.7 57.8 79.7 84.0 90.0 70.0 Business Labor Monetary Trade Investment Financial Freedom Freedom Freedom Freedom Freedom Freedom
Estonia’s business freedom has declined slightly this year, As a member of the EU, Estonia has 45 preferential trade primarily because of a lower recovery rate when resolving agreements in force. The trade-weighted average tariff insolvency. Strict government enforcement of intrusive rate (common among EU members) is 3 percent, with 639 labor laws limits labor freedom. The government is trying to EU-mandated nontariff measures in force. Estonia has an improve the targeting of subsidies for education, health care, additional six country-specific nontariff barriers. The econ- and energy, the cost of which is equivalent to 0.4 percent of omy has long benefited from openness to foreign investment, GDP in the 2020 budget. facilitated by a transparent investment regime. The financial sector remains stable and continues to expand.
The Heritage Foundation | heritage.org/Index 185