Luxembourg

   

Economic Policies

#8
Key Findings
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.

Economy

#10

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
7
Luxembourg is a small and open economy. For some time, it has ranked highly on international competitiveness indices. Similar to last year, Luxembourg was ranked 20 out of 140 countries in the International Institute for Management Development’s index (World Economic Forum, 2016). Luxembourg also ranked highly for macroeconomic environment (7th position), goods market efficiency (4th position) and technological readiness (2nd position). On the other hand, Luxembourg underperformed in health and primary education (43rd position) and higher education and training (47th position), which are important drivers of economic competitiveness and job creation.

However, Luxembourg implemented the U.S. Foreign Account Tax Compliance Act (2010) in July 2015. This law will require financial institutions in Luxembourg to provide U.S. authorities with information on the accounts held by U.S. taxpayers. Furthermore, changes to EU legislation regulating VAT rates across the European Union will reduce VAT revenue for Luxembourg from e-commerce. In 2015, Luxembourg lost about €650 million in VAT revenue from e-commerce companies. Although this change will start to be effective from 2015, following negotiations with the European Commission, the policy will only be fully implemented by 2018. These changes will have a negative impact on future government budgets. In response, the government has increased general VAT rates and new business clusters have been created to generate new revenue sources.

The country’s generous welfare model has to be reformed to adapt to a reality of reduced public resources. Luxembourg’s long-term fiscal sustainability is moderately secure. In its evaluation of Luxembourg’s Stability Program 2020, the European Commission highlighted concerns over the country’s overly optimistic economic-growth outlook and its inability to address age-related expenditures.

The financial sector remains an important driver of economic growth and sustainable development. Unfortunately, the proportion of cross-border workers to resident workers continues to increase. To expand the national labor force, Luxembourg is planning to change its immigration and naturalization policy in 2017.

Citations:
The 2016 IMD World Competitiveness Scoreboard. IMD, www.imd.org/uupload/imd.website/wcc/scoreboard.pdf. Accessed 21 Feb. 2017.

Assessment of the 2015 Stability Programme for Luxembourg. European Commission, 2015. ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2015/16_lu_scp_en.pdf. Accessed 21 Feb. 2017.

Borec, Crtomir. “EU: 2015 VAT changes to eservices – the “keep it simple” edition.” PricewaterhouseCoopers, 17 Jan. 2013, ebiz.pwc.com/2013/01/eu-2015-vat-changes-to-eservices-the-keep-it-simple-edition/. Accessed 21 Feb. 2017.

Fiscal Sustainability Report 2015. European Commission, 2016. ec.europa.eu/economy_finance/publications/eeip/pdf/ip018_en.pdf. Accessed 21 Feb. 2017.

“International LPI Global Ranking.” The World Bank, lpi.worldbank.org/international/global/2014. Accessed 21 Feb. 2017.

“Luxembourg Cluster Initiative.” Luxinnovation, en.luxinnovation.lu/Services/Luxembourg-Cluster-Initiative. Accessed 21 Feb. 2017.

“Luxembourg – 2017 Tax Reform Legislation Submitted to Parliament.” KPMG, 11 Aug. 2016, home.kpmg.com/xx/en/home/insights/2016/08/flash-alert-2016-090.html. Accessed 21 Feb. 2017.

“Observatoire de la compétitivité.” Le portal de l’actualité gouvermentale, www.gouvernement.lu/odc. Accessed 21 Feb. 2017.

Recommandation du Conseil du concernant le programme national de réforme du Luxembourg pour 2012 et portant avis du Conseil sur le programme de stabilité du Luxembourg pour la période 2012-2015. Conseil de l’Union européenne, 2012. register.consilium.europa.eu/doc/srv?l=FR&f=ST%2011263%202012%20INIT. Accessed 21 Feb. 2017.

Schwab, Klaus. The Global Competitiveness Report 2016 – 2017. World Economic Forum, 2016. www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf. Accessed 21 Feb. 2017.

“Tableau de bord national compétitivité.” le portal de l’actualité gouvermentale, www.gouvernement.lu/4108652. Accessed 21 Feb. 2017.

“Telecommunications, broadcasting & electronic services.” European Commission, ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services_en#new_rules. Accessed 21 Feb. 2017.

Labor Markets

#5

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
8
The financial crisis affected Luxembourg later than it did other European countries. In August 2016, 416,986 people were employed in Luxembourg. The labor market is particularly volatile, especially with regard to the number of foreign workers. Workers from within the so-called Greater Region of Belgium, France, Germany and Luxembourg are particularly significant. Compared to the same period in 2015, about 12,000 new permanent employees were paying compulsory social-security contributions in August 2016. Thus, thanks to its continuous growth, Luxembourg has seen a steady increase in jobs.

In first semester of 2016, only 27.3% of the workforce were Luxembourg nationals compared to 27.8% in the previous year, while 45.1% were so-called cross-border commuters (frontaliers). This situation that guarantees high flexibility and short-term fluctuations in the labor market. Within the cross-border labor market, commuters from within the Greater Region are crucial.

The ongoing restructuring of the employment agency has had a positive impact. Due a steady growth in the resident population, which has been driven by a high inflow of economic migrants, and combined with corresponding national job growth, the unemployment rate decreased to 6.4% in August 2016. In the same month, about 17,000 people (4.6% less than last year) were reported to be seeking employment. Of unemployed people, 47.7% had been out of work for longer than 12 months and 40.8% were deemed to hold low levels of education. About 3,000 foreign unemployed cross-border workers, benefiting from their state of residence in Luxembourg, are recorded separately.

The employment rate among workers aged 55 or older is 38.4%, compared to 42.5% in 2015. This is far below the EU average of 53.3 % and the government’s own target. This situation is exacerbated by numerous incentives for older workers to leave the labor market early. About 5,000 people took part in reintegration and training programs in August 2016, 6% less than in the previous year. However, such measures are only initial steps, as unemployment cannot be reduced substantially in the absence of long-term opportunities. Training must lead to permanent jobs. While 90% of the government’s budget for activation policies is directed toward employment incentives, only 10% is used for training and education. Because of this, the government has indicated that it intends to strengthen training measures for the unemployed.

Citations:
“Bildungsbeteiligung von 18-Jährigen.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=tps00060&plugin=1. Accessed 21 Feb. 2017.

“Employment rates for selected population groups, 2004 – 14.” Eurostat, ec.europa.eu/eurostat/statistics-explained/index.php/File:Employment_rates_for_selected_population_groups,_2004–14_(%25)_YB16.png. Accessed 21 Feb. 2017.

“Erwerbstätigenquote nach Geschlecht, Altersgruppe 20 - 64.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=t2020_10&plugin=1. Accessed 21 Feb. 2017.

“Erwerbstätigenquote älterer Erwerbstätiger.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdde100. Accessed 21 Feb. 2017.

“Growing risk of social exclusion among early school leavers.” OECD, www.oecd.org/social/growing-risk-of-social-exclusion-among-early-school-leavers.htm. Accessed 21 Feb. 2017.

“Harmonisierte Arbeitslosigkeit nach Geschlecht - Alter 15 - 24.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=teilm011&plugin=102. Accessed 21 Feb. 2017.

Le nombre de demandeurs d’emploi diminue de 4.6% sur un an. ADEM - Facilitons l’emploi, 2016. www.adem.public.lu/fr/publications/adem/2016/bulletin-emploi-aout-2016/Communique-de-presse-Bulletin-Aout-2016.pdf. Accessed 21 Feb. 2017.

National plan for smart, sustainable and inclusive growth - Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2016. www.gouvernement.lu/5978972/2016-pnr-luxembourg-en.pdf. Accessed 21 Feb. 2017.

“Net national income.” OECD, data.oecd.org/natincome/net-national-income.htm. Accessed 21 Feb. 2017.
“Observatoire de la compétitivité.” Le portal de l’actualité gouvermentale, www.gouvernement.lu/odc. Accessed 21 Feb. 2017.

OECD Labour Force Statistics 2015. OECD, 2016. www.oecd-ilibrary.org/employment/oecd-labour-force-statistics-2015/luxembourg_oecd_lfs-2015-22-en. Accessed 21 Feb. 2017.

“Youth unemployment rate, age group 15 - 24.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=tesem140&language=en. Accessed 21 Feb. 2017.

Taxes

#12

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
During the last years, Luxembourg has struggled with the new EU and OECD tax regulations that have made it difficult for Luxembourg to maintain its largely secret and advantageous tax deals for companies. However, after a series of delaying tactics, the country accepted the new international transparency rules, seeking to avoid greater damage to Luxembourg’s role as a financial center, and to the state budget as a whole.

In 2016, most global players in the country had negotiated positions that exempted them from corporate income taxes (2016: 21%), municipal business taxes (6.75%), a special contribution (7%), and net wealth taxes (0.5%). More than 50,000 companies had negotiated tax deals with the government that allowed them to channel profits through Luxembourg and reduce their overall tax obligations, though only 340 were named in the leaked PwC “Luxleaks” documents. Oddly, Fiat Finance Europe’s landmark conviction is in some degree beneficial to Luxembourg, as the penalty payment (between €20 million and €30 million) goes to the state treasury. The effects of these proceedings and ongoing audits under the new rules will have a major impact on state revenues over the long term. The European Union and OECD are working toward harmonizing the tax systems of EU member states. After being listed as a tax haven in 2013, the Global Forum removed Luxembourg from its blacklist in October 2015.

In 2015, the European Commission introduced new e-commerce rules for the European Union, which undermined Luxembourg’s business-friendly e-commerce VAT regime. This led to a decline in VAT revenue of approximately €650 million in 2015. To improve public finances, Luxembourg has implemented new tax rates. Several tax rates were increased, including an increase in general VAT from 15% to 17%. Nevertheless, Luxembourg continues to have the lowest VAT rate in Europe. The impact of the higher VAT rate and low interest rates will lead to slight increase in the inflation rate.

Important milestones include a major tax reform, first announced in 2014 and passed in December 2016, which focused on harmonizing individual and corporate tax systems. The government has also implemented a restructuring program to attract more foreign investment. In 2015, the process of declaring VAT was simplified by the introduction of an electronic information system. In September 2014, Luxembourg introduced a Freeport (VAT free zone) at Luxembourg airport, and reduced tax rates by 8% on imports and intra-EU acquisitions of antiques, art and collectibles. In 2016, Bitstamp opened the first EU compliant bitcoin exchange in Luxembourg and is planning to offer legal services in electronic payments.

Luxembourg’s financial center has become the most important locus of the so-called renminbi trade. Luxembourg’s global fund management industry is the second most important location for investment funds worldwide after the United States. In June 2016, the Luxembourg investment fund industry was home to €3,461 trillion in net assets, with 3,887 funds (and 14,208 fund units). Following a massive slump in the previous year, Luxembourg’s investment funds deposits increased by 2.7% in the first semester of 2016. Furthermore, Luxembourg is a European leader for responsible investment fund management. Overall, the number of employees in the financial sector rose from 44,038 in 2014 to 45,097 in June 2016.

A PwC 2015 business report ranked Luxembourg favorably. The total tax rate, after deductions and exemptions, is currently 20.2% down from 20.7% in 2014. This is the second lowest total tax rate among European and European Free Trade Association countries, behind Croatia. Luxembourg’s taxation system is very attractive for businesses with only 20% of companies paying business taxes. In 2012, property taxes accounted for 1.3 % of GDP and represented 3.3 % of tax revenue. At 0.1% of GDP, Luxembourg’s recurrent property taxes is the third lowest by GDP share among EU member countries after Malta and Croatia. However, in terms of administration, Luxembourg and Cyprus lag behind other OECD countries.

Luxembourg has the highest capital-tax-to-GDP ratio among EU member states. This shows the size and systemic importance of the financial sector in Luxembourg. To maintain the competitiveness of the financial sector, the government has decided not to introduce the Tobin tax on financial transactions.

However, Luxembourg will implement an overall tax reform in 2017. Following international standards on tax competition, Luxembourg will reduce corporation tax by 2% to 19% in 2017 with a further reduction to 18% planned for 2018. Meanwhile, higher personal tax allowances and income tax reductions will benefit middle class taxpayers.

Citations:
17th Update of the Stability and Growth Programme of the Grand Duchy of Luxembourg for the 2016 - 2020 Period. Le gouvernement du Grand-Duché de Luxembourg, 2016. www.mf.public.lu/publications/programme/17th_update_stability_growth_programme.pdf. Accessed 21 Feb. 2017.

Addressing Base Erosion and Profit Shifting. OECD, 2013. www.keepeek.com/Digital-Asset-Management/oecd/taxation/addressing-base-erosion-and-profit-shifting_9789264192744-en#page1. Accessed 21 Feb. 2017.

“Freeports Über-warehouses for the ultra-rich.” The Economist, 23 Nov. 2013, www.economist.com/news/briefing/21590353-ever-more-wealth-being-parked-fancy-storage-facilities-some-customers-they-are. Accessed 21 Feb. 2017.

“General government gross debt.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=teina225&language=en. Accessed 21 Feb. 2017.
Indirect Tax in 2016. Ernst & Young, 2016. www.ey.com/Publication/vwLUAssets/ey-indirect-tax-developments-in-2016/$FILE/ey-indirect-tax-developments-in-2016.pdf. Accessed 21 Feb. 2017.

Kannenberg, Axel. “Bitstamp: Erste Bitcoin-Börse erhält EU-Lizenz.” Heise Online, 25 Apr. 2016, www.heise.de/newsticker/meldung/Bitstamp-Erste-Bitcoin-Boerse-erhaelt-EU-Lizenz-3185763.html. Accessed 21 Feb. 2017.

Karnitschnig, Matthew. “Der Mann, der Luxemburg zum Steuerparadies machte.” The Wall Street Journal, 22 Oct. 2014, www.wsj.de/nachrichten/SB10109801331102324877704580230283594434738. Accessed 21 Feb. 2017.

—. “Luxembourg’s Tax Deals.” The Wall Street Journal, 6 Nov. 2014, blogs.wsj.com/briefly/2014/11/06/luxembourgs-tax-deals-at-a-glance/?KEYWORDS=Luxembourg. Accessed 21 Feb. 2017.

“Luxembourg Budget brings changes to corporate income tax rules.” International Tax Review, 21 Oct. 2015, www.internationaltaxreview.com/Article/3499307/Luxembourg-Budget-brings-changes-to-corporate-income-tax-rules.html. Accessed 21 Feb. 2017.
“Luxembourg opens art freeport to lure super-rich.” Reuters, 17 Sept. 2014, www.reuters.com/article/art-luxembourg-idUSL6N0RI3CI20140917. Accessed 21 Feb. 2017.

“Luxembourg: Tax reform for 2017, bill submitted to parliament.” KPMG, 29 July 2016, home.kpmg.com/xx/en/home/insights/2016/07/tnf-luxembourg-tax-reform-for-2017-bill-submitted-to-parliament.html. Accessed 21 Feb. 2017.

“Luxembourg.” Alfi.lu, 30 Nov. 2016, www.alfi.lu/statistics-figures/luxembourg. Accessed 21 Feb. 2017.

“Luxleaks.” Europaforum.lu, 6 Nov. 2014, www.europaforum.public.lu/fr/actualites/2014/11/luxleaks-gouv/index.html. Accessed 21 Feb. 2017.

Meng, Marco. “Erste Bitcoin-Börse Europas.” Journal.lu, 27 Apr. 2016, www.journal.lu/top-navigation/article/erste-bitcoin-boerse-europas/. Accessed 21 Feb. 2017.

National plan for smart, sustainable and inclusive growth - Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2016. www.gouvernement.lu/5978972/2016-pnr-luxembourg-en.pdf. Accessed 21 Feb. 2017.

OECD Economic Surveys Luxembourg. OECD, 2015. www.oecd.org/eco/surveys/Luxembourg-2015-overview.pdf. Accessed 21 Feb. 2017.

Paying Taxes 2016. PricewaterhouseCoopers, 2016. www.pwc.com/gx/en/paying-taxes-2016/paying-taxes-2016.pdf. Accessed 21 Feb. 2017.

“Real GDP growth rate.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115. Accessed 21 Feb. 2017.

“Réforme fiscale.” Le gouvernement du Grand-Duché de Luxembourg, www.reforme-fiscale.public.lu/fr/index.html. Accessed 21 Feb. 2017.

Tax Memento Luxembourg 2015. Ernst & Young, 2015. www.ey.com/Publication/vwLUAssets/Tax_Memento_Interactif_2015/$FILE/TaxMemento_Interactif.pdf. Accessed 21 Feb. 2017.

“Tax Ruling und Steueroptimierung.” Forum.lu, www.forum.lu/luxembourg-leaks/archiv-zum-thema-tax-ruling-und-steueroptimierung/. Accessed 21 Feb. 2017.

“Total employment in banks, PFS and management companies.” CSSF, 31 Dec. 2015, www.cssf.lu/en/supervision/pfs/inv-firm/statistics/annual-statistics/total-employment/. Accessed 21 Feb. 2017.

“Total employment in banks, Professionals of the Financial Sector (PFS) and management companies.” Association des Banques et Banquiers, Luxembourg, 31 Jan. 2017, www.abbl.lu/en/mediatheque/media?media=53. Accessed 21 Feb. 2017.

Under pressure from the markets. Le portail des statistiques, 2016. www.statistiques.public.lu/en/news/economy-finance/economic-outlook/2016/05/20160511/20160511.pdf. Accessed 21 Feb. 2017.
“Wachstumsrate des realen BIP.” Eurostat, ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=tec00115&plugin=1. Accessed 21 Feb. 2017.

“WSJ: Luxemburg und seine Steuertricks.” Luxemburger Wort, 24 Oct. 2014, www.wort.lu/de/business/luxemburg-im-wall-street-journal-wsj-luxemburg-und-seine-steuertricks-544a2294b9b398870807e5fd. Accessed 21 Feb. 2017.

“”Zukunftspak” in Zahlen.” Tageblatt, 15 Oct. 2014, www.tageblatt.lu/nachrichten/Luxembourg/story/23363440. Accessed 21 Feb. 2017.

Budgets

#4

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
9
From a position of relatively low public debt, consolidated public debt decreased from 23.3% of GDP in 2013 to 21.4% of GDP in 2015. After four years of fiscal consolidation and high economic growth, the 2017 government budget will include a €1 billion deficit, which will increase public debt. Supported by strong population growth and an investment boom, Luxembourg has the strongest economic growth rate along with Malta and Ireland among EU member states. Eurostat data suggests that Luxembourg’s fiscal situation will continue to stabilize. The cost of structural investments increased from €1.955 million in 2015 to €2.229 million in 2016, an increase of 14%.

Despite the loss of e-commerce tax revenue in 2015, Luxembourg’s government revenues increased significantly in 2015. In 2015, the banking sector accounted for 20% of government revenue. Furthermore, accounting for indirect taxes, such as income tax paid by banking sector employees, the overall contribution of financial institutions to government revenue is about 25%. This highlights the importance of financial services to public spending. In 2015, Luxembourg achieved a structural surplus. According to recent calculations, the general account reported a deficit of €176 million, against €841 million provided in the draft budget.

Recent legislation requiring financial institutions based in Luxembourg to provide information to U.S. authorities, which will take affect from 2017, will likely have a dampening effect on the country’s financial sector. Nevertheless, individual tax rates and low indirect labor costs will continue to make Luxembourg an attractive base for international companies.

In 2017, public investments are expected to increase by €100 million to €2.3 billion. The government continues to increase investment in housing, education and research, which are key drivers of modernization and infrastructure development.

Citations:
Assessment of the 2015 Stability Programme for Luxembourg. European Commission, 2015. ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2015/16_lu_scp_en.pdf. Accessed 21 Feb. 2017.

Beffort, Bérengère. “Taking a critical look at the 2015 budget.” Luxemburger Wort, 16 Oct. 2014, www.wort.lu/en/politics/finance-and-budget-commission-taking-a-critical-look-at-the-2015-budget-543f5981b9b39887080793a0. Accessed 21 Feb. 2017.

“De Budget 2016.” Le gouvernement du Grand-Duché de Luxembourg, www.budget.public.lu/lu/budget2016/op-ee-bleck/bref-apercu/index.html. Accessed 21 Feb. 2017.

“De Budget 2017.” Le gouvernement du Grand-Duché de Luxembourg, www.budget.public.lu/lu/index.html. Accessed 21 Feb. 2017.

“Europäische Union: Staatsverschuldung in den Mitgliedsstaaten im 3. Quartal 2016.” Statista, Jan. 2017, de.statista.com/statistik/daten/studie/198377/umfrage/staatsverschuldung-in-der-europaeischen-union/. Accessed 21 Feb. 2017.

“Labour costs per hour in national currency.” Eurostat, ec.europa.eu/eurostat/statistics-explained/images/4/41/Labour_costs_per_hour_in_national_currency_for_non-euro_area_Member_States,_whole_economy_excluding_agriculture_and_public_administration_2008-2013.png. Accessed 21 Feb. 2017.

“Le budget 2017 placé sous le signe de la qualité, de la solidarité et de la compétitivité.” Le portal de l’actualité gouvermentale, 12 Oct. 2016, www.gouvernement.lu/6374544/12-gramegna-budget. Accessed 21 Feb. 2017.

“Luxembourg.” OECD Economic Outlook, Volume 2015 Issue 1, OECD Publishing, 2015, pp. 155 - 157, www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-outlook-volume-2015-issue-1/luxembourg_eco_outlook-v2015-1-29-en#page1. Accessed 21 Feb. 2017.

National plan for smart, sustainable and inclusive growth - Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2016. www.gouvernement.lu/5978972/2016-pnr-luxembourg-en.pdf. Accessed 21 Feb. 2017.

“National Reform Programme.” European Commission, ec.europa.eu/europe2020/europe-2020-in-your-country/luxembourg/national-reform-programme/index_en.htm. Accessed 21 Feb. 2017.

OECD Economic Surveys: Luxembourg 2015. OECD Publishing, 2015, www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-surveys-luxembourg-2015_eco_surveys-lux-2015-en#page1. Accessed 21 Feb. 2017.

“Propriété intellectuelle.” Le gouvernement du Grand-Duché de Luxembourg, www.luxembourg.public.lu/fr/investir/propriete-intellectuelle/index.html. Accessed 21 Feb. 2017.

“Présentation du compte général 2015 – une amélioration sensible par rapport aux prévisions.” Le portal de l’actualité gouvermentale, 26 Sept. 2016, www.gouvernement.lu/6333510/26-compte-general. Accessed 21 Feb. 2017.

“Une exécution du budget 2014 rigoureusement conforme aux projections.” Le portal de l’actualité gouvermentale, 14 Sept. 2015, www.gouvernement.lu/5225643/14-finances-gramegna?context=3423005. Accessed 21 Feb. 2017.

Winkin, René. “Die öffentlichen Finanzen aus Sicht des CSDD.” Forum.lu, Mar. 2010, www.forum.lu/pdf/artikel/6751_294_Winkin.pdf. Accessed 21 Feb. 2017.

Research and Innovation

#14

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
7
In its Europe 2020 strategy, Luxembourg set a goal of raising public expenditure on research and innovation to between 2.3% and 2.6% of GDP, with 0.7 to 0.9 percentage points of this earmarked for public use (0.73% in 2015) and 1.6 to 1.7 percentage points earmarked for private research. The overall European goal is 3% of GDP.

Luxembourg has a high proportion of high-skilled workers, with 59.5% of jobs demanding a high level of education or training. More than 40% of the working age population has achieved a tertiary level of education, and/or is employed in the science and technology sector. This should create synergies between public research and industry. However, in the Global Innovation Index 2016, Luxembourg dropped 3 places and is now ranked 12 out of 128 countries.

The new Belval campus, designed for 7,000 students, 3,000 researchers and 6,000 inhabitants, is one of the largest urban conversion projects in Europe. In 2016, more than 1,600 employees and 3,000 students were teaching, learning and working in this modern location. In its 2016 evaluation, the OECD recommends better impact control and further investments in the Belval campus.

Citations:
2015 Rapport et Bilan. Société Nationale de Crédit et d’Investissement, 2015. www.snci.lu/files/69735.pdf. Accessed 21 Feb. 2017.

Annuaire de la compétitivité 2015. L’Union des Entreprises Luxembourgeoises, 2015. www.uel.lu/images/stories/Documents_public/Annuaire_de_la_competitivite_2015_-_UEL.PDF. Accessed 21 Feb. 2017.

“Compétences hautement qualifiées: Le Luxembourg en tête d’un classement mondial du WEF.” Le portal de l’actualité gouvermentale, 27 Oct. 2015, www.gouvernement.lu/5380237/27-wef. Accessed 21 Feb. 2017.

“Country information - Luxembourg.” European Commission, ec.europa.eu/digital-single-market/en/country-information-luxembourg. Accessed 21 Feb. 2017.

Jill.lu, www.jll.lu/luxembourg/en-gb. Accessed 21 Feb. 2017.

“Luxembourg.” Heritage, www.heritage.org/index/country/luxembourg. Accessed 21 Feb. 2017.

OECD Reviews of Innovation Policy - Luxembourg 2015. OECD Publishing, 2015. www.innovation.public.lu/fr/brochures-rapports/o/ocde-luxembourg-innovation-2015/ocde-luxembourg-innovation-2015.pdf. Accessed 21 Feb. 2017.

OECD Reviews of Innovation Policy - Luxembourg 2015. OECD Publishing, 2015. www.innovation.public.lu/fr/brochures-rapports/o/ocde-luxembourg-innovation-2015/ocde-luxembourg-innovation-2015.pdf. Accessed 21 Feb. 2017.

Schwab, Klaus. The Global Competitiveness Report 2015 – 2016. World Economic Forum, 2015. http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf. Accessed 21 Feb. 2017.

Thill, Marc, et al. “Die Debatte um den Artuso-Bericht.” Luxemburger Wort, 14 Dec. 2015, www.wort.lu/de/politik/streitgespraech-die-debatte-um-den-artuso-bericht-566e9cd90da165c55dc4f8a4. Accessed 21 Feb. 2017.

“The University of Luxembourg Booklet.” Le portal de l’actualité gouvermentale, cedies.public.lu/fr/publications/guides-pratiques/faq-uni-lu/luxembourg/guidance-booklet-for-faq-and-concerns.pdf. Accessed 21 Feb. 2017.

“World University Rankings 2015 - 2016.” Times Higher Education, www.timeshighereducation.com/world-university-rankings/2016/world-ranking. Accessed 21 Feb. 2017.

“Xavier Bettel présente l’initiative “Digital Lëtzebuerg”.” Le portal de l’actualité gouvermentale, 20 Oct. 2014, www.gouvernement.lu/4103901/20-digital-letzebuerg. Accessed 21 Feb. 2017.

Global Financial System

#7

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
6
Since the opening and creation of the single European market in the 1970s, Luxembourg has been the most important actor in the European debt capital market, playing a major role in stimulating the international financial architecture.
Luxembourg performed relatively well in the global financial crisis. After saving Dexia and Fortis, two domestically important banks, tax revenues have begun to rise again in recent years. But as a small country, Luxembourg’s economy remains strongly influenced by the general economic climate and international trends.
Luxembourg is a major financial center, with the banking and financial services industry, directly and indirectly contributing an estimated 30% or more to GDP. Consequently, the country was exposed to the effects of the economic crisis within the European Union. Luxembourg’s treatment of offshore accounts and capital deposited by non-resident customers came under international scrutiny during that period.

In the Index of Economic Freedom 2016, Luxembourg dropped three places and is ranked 19 out of 178 countries. In the World Bank’s Doing Business 2016 report, Luxembourg ranked 61 out of 190 countries, behind Greece (60) and far behind Belgium (43), France (27) and Germany (15). Reflected in these rankings is the perception that Luxembourg has difficulties in encouraging start-ups and creating new professions. After dropping two places in 2015, Luxembourg climbed two places in the 2016 Global Financial Centers Index and ranked 12 out 87 global financial centers, Europe’s third most important financial center after London and Zurich.

Citations:
“2014 Report: Helping Firms Grow.” European Commission, ec.europa.eu/growth/industry/competitiveness/reports/eu-competitiveness-report_en. Accessed 21 Feb. 2017.

European Competitiveness Report 2014. European Commission, 2014. ec.europa.eu/DocsRoom/documents/6706/attachments/1/translations/en/renditions/native. Accessed 21 Feb. 2017.

The Global Financial Centres Index 20. Z/Yen Group, 2016. www.longfinance.net/images/gfci/20/GFCI20_26Sep2016.pdf. Accessed 21 Feb. 2017.

“Luxembourg: Tax reform for 2017, bill submitted to parliament.” KPMG, 29 July 2016, home.kpmg.com/xx/en/home/insights/2016/07/tnf-luxembourg-tax-reform-for-2017-bill-submitted-to-parliament.html. Accessed 21 Feb. 2017.

OECD Economic Surveys Luxembourg. OECD, 2015. www.oecd.org/eco/surveys/Luxembourg-2015-overview.pdf. Accessed 21 Feb. 2017.

Sinner, Michèle. “Geplant, geplant, geplant.” Land.lu, 14 Oct. 2011, www.land.lu/2011/10/14/geplant-geplant-geplant/. Accessed 21 Feb. 2017.

—. “Kristallkugel.” Land.lu, 2 Dec. 2011, www.land.lu/2011/12/02/kristallkugel/. Accessed 21 Feb. 2017.

Storck, Ekkehard. Globalisierung und EWU: Der Euromarkt als Finanz-Drehschreibe der Welt. C. H. Beck, 1995.
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