Luxembourg

   

Policy Performance

#7

Economic Policies

#8
Recovering swiftly from a series of financial-sector setbacks, Luxembourg receives a high overall ranking (rank 8) for its economic policies. Its score on this measure has improved by 0.6 points since 2014.

International agreements have forced new transparency on Luxembourg’s famously secretive banks, while partially 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 a very high share of the workforce, enabling a high degree of flexibility. Employment rates among workers 55 and older are very low by EU standards.

VAT rates have been increased in response to new EU rules. Most global companies negotiate agreements that exempt them from corporate-income and other taxes. Deficits are mild and sustainable. Recent investments and bank bailouts have increased debt, though absolute levels remain low. Considerable resources are being spent to develop the R&D sector.

Social Policies

#3
With a generous social safety net, Luxembourg falls into the top ranks internationally (rank 3) for its social policies. Its score on this measure has improved by 0.2 points relative to 2014.

Education spending is high, but children of migrants are disproportionately pushed to non-university schooling tracks. Linguistic complexity forces many students to repeat academic years. The welfare system is comprehensive and generous. In response to fast-rising housing costs, a new housing allowance has been introduced, and was slated for increase in 2018.

Child-care services have been expanded, and child benefits increased. A relatively high share of children live below the poverty line. 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. A new naturalization act has eased the way to citizenship, tripling the application rate. The country has fulfilled its EU quota for refugees and asylum seekers.

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 0.6 points relative to 2014.

The country has Europe’s highest energy consumption per capita and second-highest vehicle density, and in 2016 had the OECD’s highest level of CO2 emissions per capita. Emissions-reductions goals have been hampered by economic growth and the revenues earned from cross-border fuel purchasers. A new energy-intensive Google data center will add to this pressure.

Public transportation options for cross-border commuters are needed, though the capital’s first tram line began service in 2017. 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.

Democracy

#12

Quality of Democracy

#12
With generally strong democratic institutions, Luxembourg receives high rankings (rank 13) for its 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 in national elections. Newspapers are generally tied to political parties, but the media is free of direct government interference, and reporting is becoming less partisan. The launch of several free newspapers has shaken the traditional media market.

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 understaffed courts are slow, but independent. A major constitutional reform is underway, with a referendum likely after the 2018 elections. Corruption is comparatively well controlled, with some legal gaps.

Governance

#6

Executive Capacity

#13
With its comparatively small administration, Luxembourg falls into the upper-middle ranks internationally (rank 13) with respect to executive capacity. Its score on this measure is unchanged relative to its 2014 level.

The country’s small executive has limited resources for strategic planning. While the Prime Minister’s Office is not legally allowed to work with line ministries in policy preparation, it can propose projects and reject bills, thus retaining a central policy role. There are no institutionalized mechanisms of coordination between line ministries, but informal coordination is very important.

Implementation is generally effective if somewhat slow, particularly when powerful lobbies are involved. A recent 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. Two new online platforms offer information on the impact of ongoing reform programs. Policy development typically involves broad and institutionalized consultation with economic interest groups, as well as other civil-society organizations if relevant.

Executive Accountability

#5
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 has declined by 0.2 points 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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