Economic surveys and country surveillance

Economic Survey of Luxembourg 2012


OECD Economic Surveys: Luxembourg 2012 | OECD Free preview | Powered by Keepeek Digital Asset Management

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Luxembourg enjoys the highest per capita income in the OECD and has emerged from the economic and financial crisis in relatively good shape. Luxembourg will nevertheless face a number of challenges to its economic growth and social model in the years ahead. Despite high social spending, inequality and relative poverty have risen over recent decades. Population ageing poses challenges for the sustainability of public finances especially as regards the pension system. And urban sprawl calls for greener growth. Sustainability of the Luxembourg economic and social model can be strengthened by improving policies that enhance public finances, growth, social cohesion and the environment.

Strengthening the public finances. The budget deficit is expected to widen in 2012, as growth of spending continues to outpace revenue growth. Consolidation measures should be put in place, focussing on controlling current spending within a stronger medium-term framework. Future pension costs are the main fiscal challenge. Current reform proposals are a significant step forward, although further action is needed to reduce benefits to a sustainable and fair level and to reduce incentives for early retirement.

Sustaining growth in the longer term. While many growth factors are external, policy reforms can improve underlying economic performance, competitiveness and help the economy to adapt to change. Product market regulations remain restrictive weakening competition, although welcome reforms were made to the oversight of competition policy. On-going reforms of the employment service are welcome.

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Strengthening social cohesion. The social system plays a powerful role in narrowing inequalities in disposable income, but inequality and relative poverty have increased. The insufficient work incentives created by the minimum guaranteed income should be addressed by expanding in-work benefits, continued reinforcement of activation policies and enhanced training. The sustainability of current social system would be improved by better targeting benefits, while ensuring that their design does not create new incentive problems. Social housing supports should be reformed to make them more effective at helping those in need, while lowering their cost. Inefficient and regressive tax expenditures should be scaled back.

Improving educational outcomes for the most vulnerable. Social cohesion is also influenced by the education system, which performs poorly according to PISA tests, despite high levels of spending. Poor performance reflects in part wide socio-economic disparities among students. Spending should be refocused on areas of greatest need, and more effective policies put in place to deal with language issues.

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The fiscal deficit reflects a high level of public spending

The demographic structure of the workforce implies rapid aging

Pension expenditures projections are large (2010-60)

Product market regulation remains restrictive despite reforms (2008)

The minimum wage as a percentage of average monthly earnings

Educational achievement 2009

Socio-economically advantaged students attend schools with higher level teachers

Relative poverty is drifting up

Total public social expenditures and inequality reduction

Population and employment developments

Greenhouse gas emissions

Sealed surface area and population density across different countries

How to obtain this publication 

The complete edition of the Economic Survey of Luxembourg is available from:

Additional information

For further information please contact the Spain Desk at the OECD Economics Department at

The Secretariat’s draft report was prepared by Jean-Marc Fournier, Nicola Brandt, and Sebastian Barnes with contributions from Clara Garcia under the supervision of Piritta Sorsa. Research and editorial assistance was provided by Valery Dugain.