The income and corporate tax rates are a flat 15 percent. Other taxes include a value-added tax (VAT), and the overall tax burden is equal to 18.5 percent of total domestic income. Government spending has increased to 24.6 percent of total domestic output. The budget deficit has been under control, and public debt hovers around 50 percent of GDP.
Government Spending 81.9
Fiscal Freedom 92.1
No attempt has been made to identify an optimal level of government expenditures. The ideal level will vary from country to country, depending on factors ranging from culture to geography to level of development. However, volumes of research have shown that excessive government spending that causes chronic budget deficits and the accumulation of sovereign debt is one of the most serious drags on economic dynamism.
The methodology treats zero government spending as the benchmark, and underdeveloped countries with little government capacity may receive artificially high scores as a result. However, such governments, which can provide few if any public goods, are likely to receive lower scores on some of the other components of economic freedom (such as property rights, financial freedom, and investment freedom) that reflect government effectiveness.
The scale for scoring government spending is non-linear, which means that government spending that is close to zero is lightly penalized, while levels of government spending that exceed 30 percent of GDP lead to much worse scores in a quadratic fashion (for example, doubling spending yields four times less freedom). Only extraordinarily large levels of government spending—for example, over 58 percent of GDP—receive a score of zero.
The expenditure equation used is:
GEi = 100 – α (Expendituresi)2where GEi represents the government expenditure score in country i; Expendituresi represents the total amount of government spending at all levels as a portion of GDP (between 0 and 100); and α is a coefficient to control for variation among scores (set at 0.03). The minimum component score is zero.
In most cases, general government expenditure data include all levels of government such as federal, state, and local. In cases where general government spending data are not available, data on central government expenditures are used instead.