Luxembourg

Having bounced back rapidly from the pandemic crisis, Luxembourg falls into the top ranks internationally (rank 6) for its economic policies. Its score on this measure has improved by 0.6 points since 2014.

Economic effects from the pandemic were comparatively mild. After a decline of 1.3% in GDP in 2020, growth immediately returned to robust levels. Private consumption fell by 9.4% in 2020, but has since recovered. The government has increased its public investment spending significantly.

Cross-border commuters make up fully 45% of the country’s workforce. Unemployment rates jumped during the pandemic, reaching 6.3% in early 2021. The risk of in-work poverty is rising. A major reform of the tax system was put on hold in 2021 due to the pandemic. Public debt is very moderate, having reached about 26% of GDP in 2021.

The country is a major financial center, and has been regarded as a tax haven. Many major companies have created financial subsidiaries and sought beneficial tax deals. After a number of controversies around this issue, the government has reinforced its financial oversight capacities. R&D spending is quite high in cross-EU comparison.

With a generous social safety net, Luxembourg falls into the top ranks internationally (rank 2) for its social policies. Its score on this measure has improved by 0.4 points relative to 2014.

A reform of the education system is underway, focusing on creativity and digital skills. Linguistic complexity generates difficulties for many students, especially migrants. The government provided iPads and software for students during pandemic lockdowns. Minimum wages are high, and housing assistance funds help with high housing costs. In-work poverty is a growing problem.

The healthcare system is very good. About 99% of the population is covered by the state system, with 75% having additional insurance. The system relies on cross-border workers, and nearly collapsed when the border to France was closed during the pandemic. Pension benefits are very generous, but the system has sustainability concerns.

Child benefit levels are very high. Family-friendly workplace arrangements have been improved, and gender pay gaps have decreased. Low-income households are provided with free childcare. More than half of the country’s residents have a migrant background. Special integration programs are provided for children in schools, but dropout rates for children of migrant parents remain high.

With increasing attention being paid to climate-change issues, Luxembourg falls into the top ranks internationally (rank 6) with respect to environmental policies. Its score in this area has improved by 1.8 points relative to 2014.

The government has set a target of climate neutrality for 2050, with a 55% emissions reduction goal for 2030. As the country still depends heavily on fuel sales to transient drivers, this will be difficult to meet under current strategies. Levels of renewable energy production and use are only moderate.

Policies are underway to address emissions more directly. The public transportation network has been made free of charge. Further investment in rail infrastructure and charging stations is underway. A carbon tax remains one of the main policy instruments.

Biodiversity has been experiencing a long-term decline due to urbanization and landscape fragmentation. The country is one of the world’s most significant contributors of public international climate finance on a per capita basis.

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 rights have been expanded for foreign nationals. Newspapers often retain some affinities for certain political parties, but the media is free of direct government interference. The media environment is highly pluralist, and a wide range of mass media receive public subsidies.

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. The overloaded and understaffed courts are slow, but independent. Corruption is comparatively well controlled. A new transparency register obliges parliamentarians to disclose which interest group representatives they meet.

With its comparatively small administration, Luxembourg falls into the upper-middle ranks internationally (rank 16) 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, no sensitive proposal is presented to the Council of Ministers without the prime minister’s informal approval. In general, 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. A major administrative reform has been underway, with digitalization of government services a key focus of the effort.

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.

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 improved by 0.1 point relative to its 2014 level.

Parliamentarians have adequate resources, and formal oversight powers are strong. A minister for relations with parliament fosters relations with the executive. The low-profile Court of Auditors effectively reviews public spending. The Ombuds Office is a useful instrument for noncitizen 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. Facility with Luxembourgish is often required for political participation of this nature. The public shows only a modest interest in political processes. 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 they tend to have fewer resources.