Sustainable Policies


Economic Policies

Having recovered 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.

Growth has been robust, with projections for the coming years remaining strong. Growth engines include goods and services exports, but domestic demand has also shown a steady upward trend. The country’s per capita consumer expenditure is the EU’s highest. Real wages have risen moderately over the last several years.

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. Long-term unemployment rates have been declining for years. The government has posted small surpluses, and the overall government debt is low by EU standards at 19.8% of GDP.

Recent EU and OECD tax regulations have forced transparency on Luxembourg’s famously secretive banks. The country continues to offer preferential tax-incentive deals to most global companies. The adoption of EU rules on e-commerce taxation produced significant revenue losses, resulting in increases in the overall VAT rate.

Social Policies

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. Inequality and poverty rates are rising, exacerbated by high property and rental costs. In response to fast-rising housing costs, a new housing allowance was launched in 2018.

Childcare services have been expanded, and child benefits increased. Women’s labor-market participation rate is relatively low but rising. The generally high-quality healthcare system is having difficulty keeping up with population growth, and patients are often sent to nearby countries for treatment.

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, and all foreigners, whether citizens of the EU or third countries, can vote in local elections if they fulfil residency requirements.

Environmental Policies

With increasing attention being paid to climate-change issues, Luxembourg scores well overall (rank 8) with respect to environmental policies. Its score in this area has improved by 1.3 points relative to 2014.

The country has made reasonable progress toward emissions-reduction goals, though its current target of a 40% reduction compared to 2005, to be achieved by 2030, appears quite ambitious. The state has made all public transportation free to users, is expanding the tram network and provides support for the purchase of e-bikes. Fuel consumption is on the decline.

Under the current strategy, future emissions-reduction goals are to be attained through a CO2 tax, electrification of automobile traffic, introduction of higher energy-efficiency standards for new residential buildings, and replacement of oil heating with renewable energy sources.

Sewage treatment has been an area of some concern. The country makes substantial contributions to international climate aid funds, and was slated to launch its first sustainability bond in 2020, with proceeds earmarked for climate, environmental and social issues.

Robust Democracy


Quality of Democracy

With generally strong democratic institutions, Luxembourg falls into the upper-middle ranks (rank 13) with regard to democracy quality. Its score on this measure has declined by 0.1 point relative to its 2014 level.

Voting is compulsory for nationals. The 2018 parliamentary elections highlighted problems related to the allocation of legislative seats. Newspapers are generally tied to political parties, but the media is free of direct government interference, and reporting is becoming less partisan. The appearance of new online publications has created sources of serious journalism and made the sector more pluralistic.

Parties receive most of their funding from the state. No freedom of information act exists, and the government cultivates a certain culture of secrecy. Civil rights and political liberties are well protected, and xenophobia and anti-Semitism are consistently punished by the courts.

Administrative decisions are often ad hoc, reducing legal certainty. A major constitutional reform is underway, with some residents concerned that it is being written in French rather than Luxembourgish. The overloaded and understaffed courts are slow, but independent. Corruption is comparatively well controlled.

Good Governance


Executive Capacity

With its comparatively small administration, Luxembourg falls into the upper-middle ranks internationally (rank 15) with respect to executive capacity. Its score on this measure has declined by 0.3 points 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. Efforts to centralize land-use regulation have been ongoing for years, dragging on as a result of insufficient personnel, changing EU legislation and citizen initiatives.

RIAs for draft bills are required, but this is not an open and consultative process. Ex post evaluations of legislation are rare. Consultation with unions and other civil society organizations has diminished in recent years. Powerful interest groups such as civil servants can disproportionately affect policy.

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 has declined by 0.1 point relative to its 2014 level.

Parliamentarians have adequate resources, and formal oversight powers are strong, though government answers to parliamentary questions are often inadequate. The low-profile Court of Auditors effectively reviews public spending. The Ombuds Office is a particularly useful instrument for non-citizen residents, and the National Data Protection Commission oversees the legality of personal data processing.

The government has implemented a number of programs in recent years designed to enhance citizen participation. However, the public shows a low level of interest in political processes. A number of newspapers have gone out of business, but online services are filling some reporting gaps. Media coverage is often reactive.

Political parties vary in their approach to 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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