Luxembourg

   

Policy Performance

#7

Economic Policies

#7
Despite setbacks in its dominant financial sector, Luxembourg receives a high overall ranking (rank 7) for its economic policies. Its score on this measure has improved by 0.1 point 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 financial-sector revenue.

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. Deficits are mild and sustainable. A new €1 billion “Future Fund” will fund long-term projects. Considerable resources are being spent to develop the R&D sector.

Social Policies

#5
With a generous social safety net, Luxembourg falls into the top ranks internationally (rank 5) for its social policies. Its score on this measure remains unchanged relative to 2014.

Education spending is high, but gender gaps are significant, and children of migrants have a harder time reaching university. Many students repeat years, delaying workforce entry. The welfare system is comprehensive, guaranteeing a minimum income, with only a modest poverty risk after transfers.

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, based on contributions from employees, employers and the state, is generally of high quality. Costs are high, but out-of-pocket expenses very low.

Pension benefits are high, but further reforms are needed to ensure sustainability. With many immigrants, the country has focused strongly on integration, with mixed success. The crime rate has risen in recent years.

Environmental Policies

#11
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.

While some water-quality progress has been made, water bodies are often polluted. The renewable-energy share is quite low, and waste-water management systems are badly outdated.

Democracy

#14

Quality of Democracy

#14
With generally strong democratic institutions, Luxembourg falls into the upper-middle ranks internationally (rank 14) in terms of democracy quality. After a slight gain last year, its score has fallen back to its 2014 level.

Electoral laws are fair, and voting is compulsory. Newspapers are generally tied to political parties, but the media is free of direct government interference, and reporting is becoming less partisan. Press-subsidy funding now includes online publications. 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 proposal to provide foreign residents with voting rights was rejected in a recent referendum.

Administrative decisions are often ad hoc, reducing legal certainty. The overloaded and unstaffed courts are slow, but independent. Corruption is comparatively well controlled, with some legal gaps.

Governance

#6

Executive Capacity

#14
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. Municipalities complain of insufficient central funding. The PMO does not have the resources to monitor ministry activities.

RIAs are required, but are not publicly available or independently evaluated. After stumbling during the crisis, traditional neocorporatist channels of policy development have regained their significance.

Executive Accountability

#5
With a strongly consensus-driven system, Luxembourg falls into the top ranks internationally (rank 5) in terms of executive accountability. After a slight gain last year, its score on this measure has fallen back 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 migrant residents.

With 46% of residents being foreign nationals, there is strong unmet demand for political participation. Full social inclusion requires command of three national languages, but particularly Luxembourgish. 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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