Policy Performance


Economic Policies

Despite setbacks in its dominant financial sector, Luxembourg receives a high overall ranking (rank 8) for its economic policies. Its score on this measure has improved by 0.2 points since 2014.

International agreements have forced new transparency on Luxembourg’s famously secretive banks, while undermining the country’s ability to offer preferential tax-incentive deals and e-commerce VAT rates. New business areas are being sought to make up for lost revenue. The country is no longer listed as a tax haven by the Global Forum

Growth has been steady and strong. Unemployment rates are moderate and declining, with cross-border commuters accounting for more than 40% of the workforce, enabling a high degree of flexibility. Employment rates among workers 55 and older are very low by EU standards.

Tax rates are low. A major 2014 reform increased tax-system coherency. Only 20% of companies pay business taxes, but the financial sector produces significant tax revenue. Deficits are mild and sustainable, with revenues increasing significantly in 2015. Considerable resources are being spent to develop the R&D sector.

Social Policies

With a generous social safety net, Luxembourg falls into the top ranks internationally (rank 4) for its social policies. Its score on this measure has improved by 0.1 point relative to 2014.

Education spending is high, but children of migrants are disproportionately pushed to non-university schooling tracks. A secondary-education reform is planned for 2017. The welfare system is comprehensive. In response to fast-rising housing costs, a new housing allowance has been introduced.

Child-care services have been expanded, and child benefits increased. Women’s labor-market participation rate is relatively low but rising. The health care system is generally of high quality. System costs are high, but out-of-pocket expenses very low.

Pension benefits are quite high, but further reforms are needed to ensure sustainability. More than half of the country’s residents have a migrant background. After vigorous rejection of a referendum proposal to give non-citizens voting rights, the government is preparing a new naturalization act.

Environmental Policies

Despite ongoing difficulties in reaching ecological goals, Luxembourg scores well overall (rank 11) with respect to environmental policies. Its score in this area has improved by 0.4 points relative to 2014.

The country has Europe’s highest energy consumption per capita and highest vehicle density. Emissions-reductions goals have been hampered by economic growth and the revenues earned from cross-border fuel purchasers. Public transportation for cross-border commuters has not been a sufficient focus, and biodiversity is a serious concern.

The country currently has the EU’s lowest share of energy consumption from renewable sources.

While some water-quality progress has been made, water bodies are often polluted. Waste-water management systems are badly outdated. Biodiversity is a problem, as the country has the EU’s highest degree of landscape fragmentation.



Quality of Democracy

With generally strong democratic institutions, Luxembourg falls into the upper-middle ranks internationally (rank 13) in terms of democracy quality. Its score on this measure has gained 0.1 point relative to its 2014 level.

Electoral laws are fair, and voting is compulsory for nationals. However, the remaining 47% of the resident population cannot vote. A proposal to provide foreign residents with voting rights was rejected in a recent referendum. Newspapers are generally tied to political parties, but the media is free of direct government interference, and reporting is becoming less partisan.

Party financing has become increasingly transparent, but some concerns remain outstanding. No freedom of information act exists. Civil rights and political liberties are well protected. A new prison is being built to address overcrowding.

Administrative decisions are often ad hoc, reducing legal certainty. The overloaded and unstaffed courts are slow, but independent. A major constitutional reform is underway, with a referendum likely in 2019. Corruption is comparatively well controlled with some legal gaps.



Executive Capacity

With its comparatively small administration, Luxembourg falls into the upper-middle ranks internationally (rank 14) with respect to executive capacity. Its score on this measure is unchanged relative to 2014.

The country’s small executive has limited resources for strategic planning. The Prime Minister’s Office lacks broad policy-assessment and coordination capacities, and is not legally allowed to work with line ministries in policy preparation. The prime minister is responsible for policy communication, with consensus between ministers an important norm.

Informal coordination is very important. Implementation is generally effective if somewhat slow. A new municipal-finance reform aims to provide municipalities with greater financial security. The PMO does not have the resources to formally monitor ministry activities.

RIAs for draft bills are required, but are not publicly available or independently evaluated. Policy development typically involves broad and institutionalized consultation with economic interest groups and other civil-society organizations as relevant.

Executive Accountability

With a strongly consensus-driven system, Luxembourg falls into the top ranks internationally (rank 5) in terms of executive accountability. Its score on this measure is unchanged relative to its 2014 level.

Parliamentarians have adequate resources, and formal oversight powers are strong. Gaps exist regarding scrutiny of the secret service. The low-profile Court of Auditors effectively reviews public spending. The Ombuds Office is a particularly useful instrument for non-citizen residents.

With 47% of residents being foreign nationals, there is strong unmet demand for political participation. Full social inclusion requires command of three national languages, with Luxembourgish particularly important in the political sphere. The media offers high-quality policy reporting, and newspapers have become less partisan over time.

Political parties demonstrate considerable internal democracy. The government is required to consult with economic associations, which have well-developed research units. Other interest groups are also influential, though have fewer resources.
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