VILNIUS, JAN. 4, 2006 – Economic freedom made impressive gains throughout North America and Europe in general; however, Lithuania’s situation remained unchanged, while Estonia and Latvia posted sharp declines, according to the 2006 “Index of Economic Freedom,” published annually by The Wall Street Journal and The Heritage Foundation
The 2006 “Index of Economic Freedom” today is announced by the Lithuanian Free Market Institute (LFMI), invited by The Heritage Foundation, an influential US-based organisation, to be one of the seven partners in Europe to help prepare and disseminate the well-known study in Lithuania. To that end, LFMI will stage a round table discussion which will take place at the Presidential Palace, Vilnius, on January 12, 2006.
As the results of the latest study show, the level of economic freedom in Lithuania remained virtually unchanged: Lithuania ranks 23,rd the same as in the previous study, although the country’s score slightly improved, by four percentage points to 2,14. Lithuania remains in the group of “mostly free” countries. The country’s overall score is higher as the figure for fiscal burden of government is better this year, but it is still driven down by vast bureaucracies and corruption, insufficient confidence in courts and price regulation.
Neighbouring countries suffered a sharp drop in economic freedom: Estonia moved from the 4th place to the 9th, but still remains among the “free” countries, and Latvia plummeted by 33 positions to 39th place. According to the authors, rising government spending and the adoption of EU trade policies worsened Estonia‘s Index score. Latvia was pushed down by increased fiscal burden and inflation.
In general, the regions of North America and Europe saw an impressive rise in economic freedom. From the western end of the region, where the United States rejoined the world’s 10 freest economies, to the middle, where Germany joined the ranks of “free” economies for the first time, to the eastern end, where Romania improved more than any other country worldwide except Pakistan, the North America-Europe region widened its worldwide lead in economic freedom.
Led by Ireland, the third-freest economy worldwide, the region includes 15 of the 19 economies rates as “free” and seven of the top 10. Among the 45 countries in North America and Europe, 33 improved, including Armenia, Georgia and Turkey, and 10 declined, according to the Index editors.
Germany cracked the “free” barrier in part because of the lowering of tariff rates (weighted average) by the European Union but also because of improvements in its “fiscal burden of government” score. It lowered income taxes and government expenditures as a percentage of gross domestic product (GDP) and, as a result, recorded a score of 1.96—0.4 better than last year, when it narrowly missed a “free” designation.
The United States ranked among the 10 freest economies every year for the first 10 editions of the Index. But after slipping to 12th place overall last year, it regained a top 10 ranking by narrowly cutting government spending as a percentage of GDP and by lowering tariff rates (weighted average).
Romania retains a “mostly unfree” rating, and its 3.19 score ranks 92nd among the 157 countries rated in this year’s Index. Moreover, its weighted average tariff rates actually climbed in the last year. But Romania implemented a flat tax of 16 percent on individual and corporate income, cut inflation and reduced government intervention in the economy.
As in previous years, the Index ratings reflect an analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and informal (or black) market activity. Countries are rated one to five in each category, one being the best and five the worst. These ratings are then averaged to produce the overall Index score.
This is the 12th consecutive year The Heritage Foundation and The Wall Street Journal have published the Index. Marc Miles is director of Heritage’s Center for International Trade and Economics and will be visiting Lithuaniaa to present the latest results, Kim Holmes is Heritage’s vice president for foreign affairs, and Mary Anastasia O’Grady, who is a member of the Journal’s editorial board and edits the “Americas” column.
Print versions of the 2006 Index of Economic Freedom are available in English or Spanish. Additionally the full text will be available via the Internet at
www.heritage.org/index.
