Economy of Iceland

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Economy of Iceland

Post  kosovohp on Sat Oct 23, 2010 10:37 pm

In 2007, Iceland was the seventh most productive country in the world per capita (US$54,858), and the fifth most productive by GDP at purchasing power parity ($40,112). Except for its abundant hydroelectric and geothermal power, Iceland lacks natural resources; historically its economy depended heavily on the fishing, which still provides 40% of export earnings and employs 7% of the work force.[6] The economy is vulnerable to declining fish stocks and drops in world prices for its main material exports: fish and fish products, aluminium, and ferrosilicon. Whaling in Iceland has been historically significant. Iceland still relies heavily on fishing, but its importance is diminishing from an export share of 90% in the 1960s to 40% in 2006.[81]

While Iceland is a highly developed country, until the 20th century it was among the poorest countries in Western Europe. However, strong economic growth has led Iceland to be ranked first in the United Nations' Human Development Index report for 2007/2008,[12] and the 14th longest-living nation with a life expectancy at birth of 80.67 years.[6] Many political parties remain opposed to EU membership, primarily due to Icelanders' concern about losing control over their natural resources.[citation needed]
A 500 króna banknote. The Icelandic króna is the national currency of Iceland.

The national currency of Iceland is the Icelandic króna (ISK). An extensive poll, released on 5 March 2010, by Capacent Gallup showed that 31% of respondents were in favour of adopting the euro and 69% opposed.[82] Iceland's economy has been diversifying into manufacturing and service industries in the last decade, including software production, biotechnology, and financial services. Despite the decision to resume commercial whale hunting in 2006, the tourism sector is expanding, with the recent trends in ecotourism and whale-watching. Iceland's agriculture industry consists mainly of potatoes, green vegetables (in greenhouses), mutton and dairy products.[83] The financial centre is Borgartún in Reykjavík, hosting a large number of companies and three investment banks. Iceland's stock market, the Iceland Stock Exchange (ISE), was established in 1985.[84]

Iceland ranked 5th in the Index of Economic Freedom 2006 and 14th in 2008. Iceland has a flat tax system. The main personal income tax rate is a flat 22.75% and combined with municipal taxes the total tax rate is not more than 35.72%, and there are many deductions.[85] The corporate tax rate is a flat 18%, one of the lowest in the world.[85] Other taxes include a value-added tax; a net wealth tax was eliminated in 2006. Employment regulations are relatively flexible. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management.[85] Taxpayers pay various subsidies to each other, similar to European countries with welfare state, but the spending is less than in most European countries.

Despite low tax rates, overall taxation and consumption is still much higher than countries such as Ireland.[citation needed] According to OECD, agricultural support is the highest among OECD countries and an impediment to structural change. Also, health care and education spending have relatively poor return by OECD measures. OECD Economic survey of Iceland 2008 highlighted Iceland's challenges in currency and macroeconomic policy.[86] There was a currency crisis that started in the spring of 2008, and on 6 October trading in Iceland's banks was suspended as the government battled to save the economy.

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