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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of Luxembourg, published on 1st July 2008.
Luxembourg’s economy is in fine shape. Growth has been robust over the past three years, thanks to the expansion of the financial sector, while other business sectors also enjoyed buoyant activity. This has led to impressive employment gains benefitting both job seekers of the Grand-Duchy and cross-border workers living in neighbouring regions of Belgium, France and Germany.
The international financial crisis is, however, now taking its toll, and growth is likely to weaken. Signs of a financial-sector slowdown began to emerge towards the end of last year. The weakening of activity will have a negative effect on tax receipts, which public finances should be able to shoulder easily, given the comfortable fiscal position registered last year.
The financial sector remains sound, reflecting high-quality supervision. It might, however, prove difficult to return to the exceptional pace of growth of the past decade in view of the various challenges faced by the financial sector, such as international competition and possible changes to the tax framework. In response to these challenges, the government should further improve the country’s attractiveness for high-skilled talents, including by raising the efficiency of the health and education services and adopting more flexible immigration laws and dual nationality rules.
The short-term fiscal position is sound, but fiscal policy needs to evolve towards a medium-term framework. A greater emphasis in the budget should be put on desired outcomes rather than on inputs, and on ensuring efficient delivery. Importantly, public finances need to prepare for the maturing of the pension system. The pre-funding element in place needs to be developed further; in addition, the government and the social partners need to restrain the generosity of pension benefits and encourage later retirement.
The health care system is well funded, thanks to the contributions of prime-age crossborder workers; the population’s health status is, however, only average by international standards. While non-medical causes are at play, there is scope for improving the transparency of results and the quality of health services within given resources. The proposed merger of health insurance funds is welcome; if approved, the new consolidated fund will be in a good position to act as a wise buyer of health care services. The ample capacity of hospitals tends to lead to unnecessarily long hospital stays, while the fee-for-service remuneration of doctors tends to induce an oversupply of medical interventions; the payment and funding systems should be reformed by introducing a DRG system covering the remuneration of doctors, so as to remove these distortions. Unnecessary demand could be restricted by introducing standardised electronic patient records, promoting efficient medical practices, as well as through the introduction of gate-keepers and higher copayments where appropriate.
The last OECD Survey focused on the compulsory education system, which faces the twin challenges of pupils with a heterogeneous background and a curriculum ambitious in multiple languages. Since then, PISA 2006 results have confirmed that testing scores are below the international average. The authorities have started to reform the schooling system, with several initiatives bearing fruit, but more could be done. The government could focus more on the objective that students build up their human capital and in particular acquire skills in greater demand by the labour market, which may imply a more balanced focus on languages. School leaders should be held more accountable for the successful achievement of such objective, while getting greater managerial autonomy.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Luxembourg 2008 is available from:
For further information please contact the Luxembourg Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Jens Christian Høj, Ekkehard Ernst, Arnaud Bourgain and Patrice Pieretti under the supervision of Patrick Lenain. Research assistance was provided by Laure Meuro and secretarial assistance by Heloise Wickramanayake.