Quick Facts
- Population:
- 7.4 million
- GDP (PPP):
- $219.4 billion
- 4.6% growth
- 4.1% 5-year compound annual growth
- $29,531 per capita
- Unemployment:
- 6.6%
- Inflation (CPI):
- 2.7%
- FDI Inflow:
- $5.2 billion
Israel’s economic freedom score is 67.8, making its economy the 48th freest in the 2012 Index. Its overall score has decreased by 0.7 point, primarily due to declines in trade freedom and the control of government spending. Israel is ranked 6th out of 17 countries in the Middle East/North Africa region.
Israel’s economic competitiveness is anchored in strong protection of property rights and relatively low levels of corruption, which have served as cornerstones of long-term economic expansion. There is still room for improvement in public finance management as respect for the principle of limited government has weakened in recent years.
Despite the challenging global economic environment, Israel’s economy has been on a path of recovery. With an increasingly diversified productive base and ongoing structural reforms, growth has been close to 4 percent annually over the past five years. Openness to global commerce supports productivity growth, and reforms have enhanced regulatory efficiency. The top corporate income tax rate was reduced to 24 percent in 2011 and is scheduled to fall to 20 percent in 2015 and 18 percent in 2016. The top personal income tax rate will drop to 39 percent in 2016.
Background
Israel gained independence in 1948 as a result of the partition of the British Mandate for Palestine, and its vibrant democracy remains unique in the region. Prime Minister Benjamin Netanyahu leads a right-of-center coalition government formed after the February 2009 elections. A series of wars for survival against its Arab neighbors have imposed a high defense burden on Israel’s state-dominated economy. Although endowed with few natural resources, Israel has developed agriculture, industry, and a dynamic high-tech sector that attracts considerable foreign investment. Exports of goods and services generate about 40 percent of GDP. Despite the 2006 war against Hezbollah in Lebanon, the December 2008 war against Hamas in Gaza, and the constant threat of war and terrorism, the economy has grown significantly.
Rule of LawView Methodology
Property Rights 70.0 Create a Graph using this measurement
Freedom From Corruption 61.0 Create a Graph using this measurement
The rule of law is sustained by a modern legal framework based on British common law. Protections for property rights and contracts are enforced effectively. The court system is independent, and commercial laws are applied consistently. Bribery and other forms of corruption are illegal. Relatively effective anti-corruption measures have helped to strengthen the foundations of economic freedom.
Limited GovernmentView Methodology
Government Spending 41.0 Create a Graph using this measurement
Fiscal Freedom 64.1 Create a Graph using this measurement
The top income tax rate is 45 percent, and the top corporate tax rate has been reduced to 24 percent in 2011. Other taxes include a value-added tax (VAT) and a capital gains tax, with the overall tax burden amounting to 31.4 percent of total domestic income. Government spending is equivalent to 44.3 percent of GDP. The budget balance has been in deficit, with public debt corresponding to over 70 percent of total domestic output.
Regulatory EfficiencyView Methodology
Business Freedom 64.4 Create a Graph using this measurement
Labor Freedom 65.1 Create a Graph using this measurement
Monetary Freedom 79.0 Create a Graph using this measurement
Israel’s overall regulatory framework promotes efficient entrepreneurial activity. The pace of regulatory reform has lagged slightly behind that of other emerging economies. The labor market is in need of more flexibility to accommodate rapid economic transformation. Unionization has declined steadily from about 80 percent of all jobs to below 35 percent. Inflation has been modest, but upward pressures linger.
Open MarketsView Methodology
Trade Freedom 83.6 Create a Graph using this measurement
Investment Freedom 80.0 Create a Graph using this measurement
Financial Freedom 70.0 Create a Graph using this measurement
The trade weighted tariff rate is 3.2 percent, but non-tariff barriers add to the cost of trade. The investment regime is modern and efficient, supporting vibrant levels of foreign investment. Financial institutions offer a wide range of services, and credit is readily available on market terms. Capital markets have been greatly liberalized as part of Israel’s effort to reinvent itself as a financial hub.
Country’s Score Over Time
Country Comparisons
Regional Ranking
| rank | country | overall score | change from previous |
|---|---|---|---|
| 1 | Bahrain | 75.2 | -2.5 |
| 2 | Qatar | 71.3 | 0.8 |
| 3 | Jordan | 69.9 | 1.0 |
| 4 | United Arab Emirates | 69.3 | 1.5 |
| 5 | Oman | 67.9 | -1.9 |
| 6 | Israel | 67.8 | -0.7 |
| 7 | Kuwait | 62.5 | -2.4 |
| 8 | Saudi Arabia | 62.5 | -3.7 |
| 9 | Morocco | 60.2 | 0.6 |
| 10 | Lebanon | 60.1 | 0.0 |
About The Index
A Step Backward for Economic Freedom in 2012
The world economy is in trouble, and governments are making things worse. Here’s the story, right out of the pages of the 2012 Index of Economic Freedom… Continue reading Dr. Edwin J Feulner’s Wall Street Journal OpEd
When institutions protect the liberty of individuals, greater prosperity results for all.
Economist Adam Smith formed this theory in his influential work, The Wealth of Nations, in 1776. In 2012, his theory is measured – and proven – in the Index of Economic Freedom, an annual guide published by The Wall Street Journal and The Heritage Foundation, Washington’s No. 1 think tank.
For over a decade, The Wall Street Journal and The Heritage Foundation, Washington’s preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom. Since 1995, the Index has brought Smith’s theories about liberty, prosperity and economic freedom to life by creating 10 benchmarks that gauge the economic success of 184 countries around the world. With its user-friendly format, readers can see how 18th century theories on prosperity and economic freedom are realities in the 21st century.
The Index covers 10 freedoms – from property rights to entrepreneurship – in 184 countries.
