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Estonia The gap in GDP per capita relative to the upper half of OECD countries remains large although it has been narrowing steadily since the global financial crisis. Employment has been increasing and labour productivity growth has also contributed to narrowing the gap. Income inequality, which is around the OECD average, has moderately decreased in recent years. Greenhouse gas emissions per capita are high and failed to decrease over the past two decades. Some of the priorities identified previously in Going for Growth – on skill shortages and the high structural unemployment – have been addressed, notably by boosting vocational education, encouraging the recipients of disability benefits to return to work and by reducing the labour tax wedge on low-income earners. Improving research collaboration between domestic and foreign institutions, strengthening infrastructure, in particular by expanding access to European transport networks, and shortening corporate insolvency procedures would accelerate productivity growth. Further strengthening vocational education and training would boost productivity of low wage workers, thereby making growth more inclusive. Incentives for greener buildings and a smart electric grid would help improve energy efficiency, which is similar to the advanced OECD countries. Growth performance, inequality and environment indicators: Estonia C. Gaps in GDP per capita and productivity are narrowing steadily
A. Growth Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio
2002-08 6.4 1.9 1.2 1.1 -0.3 4.3 2.3 2.0 0.1
2012-18 3.2 2.1 1.0 0.8 0.2 1.6 0.5 1.1 -0.5
Level
Annual variation (percentage points)
-40
2016 31.4 (31.7)*
2013-16 -1.4 (0)*
-50
7.2 (7.6)*
0.2 (0)*
-60
2016 12.9 (10.9)* 0.5 (0.3)* 0.0
Average of levels 2010-16 13.9 (11.3)* 0.6 (0.3)* 0.0
Gap to the upper half of OECD countries5 Per cent 0 -10 -20 -30
B. Inequality and environment
Gini coefficient3 Share of national disposable income held by the poorest 20%
GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)
GDP per capita -70
GDP per hour worked
-80
Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases. StatLink 2 https://doi.org/10.1787/888933954838
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Policy indicators: Estonia A. Property taxes are low Percentage of total tax revenue, 2017
B. There is room to improve the insolvency framework OECD composite insolvency index Scale from 0-1 from least to most stringent,¹ 2016
1.0
6 5
0.8
4 0.6 3 0.4 2 0.2
1 0
ESTONIA
Advanced economies
EU
ESTONIA
Advanced economies
EU
Nordic countries
0.0
Source: Panel A: OECD, Revenue Statistics Database; Panel B: Adalet-McGowan, A. and D. Andrews (2018), "Design of Insolvency Regimes across Countries", OECD Economics Department Working Papers, forthcoming. StatLink 2 https://doi.org/10.1787/888933955712
Beyond GDP per capita: Estonia A. Inequality has decreased but remains higher than in most advanced economies Gini coefficient, 2016 or last available year¹ SVK, 24.1
ESTONIA, 31.4
ZAF, 63.0
Advanced economies median, 29.7
Emerging economies median, 46.2
B. Exposure to fine particulate matter is low Percentage of population exposed to PM2.5, 20172 % ESTONIA
Advanced economies
< 10 μg/m³ 10-35 μg/m³
Emerging economies
> 35 μg/m³
World 0
10
20
30
40
50
60
70
80
90
100
Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database. Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter. StatLink 2 https://doi.org/10.1787/888933956586
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Estonia: Going for Growth 2019 priorities Reduce skill mismatches by improving vocational education and activation. Skill shortages contribute to structural unemployment and constrain competitiveness and out-of-work working-age individuals face a higher poverty risk.
Actions taken: In 2017 and 2018 several new activation programmes were launched designed to improve digital competence, providing Estonian classes and offering development classes for disabled people. An activation programme for young people, designed to help them resume their studies or join the labour market, was developed and will be tested during 2018-2019. In 2018 the system for forecasting labour market needs (OSKA) was launched.
Recommendations: Improve access to upper-secondary vocational education by providing more financial assistance to students. Expand workplace-based training by introducing a tax-free lower minimum wage for apprenticeships. Strengthen collaboration of business and schools at the local level.
Reduce labour taxation and costs in private pension schemes. High labour tax wedges on low-income earners and high operating costs of the compulsory private funded pension pillar borne by workers discourage employment.
Actions taken: The 2018 budget increased the personal tax allowance from EUR 180 to EUR 500, effectively lowering the tax wedge for low-wage earners. In 2018 a pension reform bill was approved by the government, enhancing the work incentives of older worker.
Recommendations: Further reduce the tax burden on labour earnings by reducing social security contributions on low-pay workers. Abolish the lump-sum minimum social tax. Raise more revenue from real estate taxation by removing exemptions and by evaluating property according to market prices. Reduce the operating costs of compulsory private pension systems, in particular marketing expenses, through further disclosure of information on costs in a standardised manner.
Enhance the effectiveness of innovation policies. Expenditure on research and development has decreased since 2011 and its share of GDP is below the European Union average.
Actions taken: In 2018, a development programme for the ICT sector has been approved, including the provision of subsidies for the recruitment of foreign ICT specialists and support for the digital transition of the industry. During 2018 the authorities have also started to gather information on R&D sectorial needs.
Recommendations: Strengthen knowledge transfer to domestic firms, especially SMEs, by further promoting collaboration between firms and higher education institutes and between domestic and foreign research institutions. Hold inter-ministerial working groups co-ordinating innovation policies and review their performance regularly. Shorten corporate insolvency procedures in order to promote entrepreneurship and resource allocation.
132 Promote efficiency in the regulation of energy markets. Low energy efficiency contributes to high CO2 emissions.
Actions taken: Connection between Estonia and Latvia through the Baltic Connector project will be established by 2020. The gasoline excise tax rate has been progressively raised and should increase by 10% in 2018. Starting from 2018, a new road use charging scheme for heavy vehicles has been introduced.
Recommendations: Reduce the share of oil shale in the energy mix. Reduce electricity losses during transfer by introducing a smart grid. Improve incentives for increasing efficiency in district heating, for instance by applying benchmark regulation. Raise incentives for households and building owners to invest in energy efficiency in buildings, for example by providing more financial support to low-income households for energy-saving investments. Increase transport-related taxes.
Improve infrastructure. Infrastructure bottlenecks are constraining labour mobility and well-being.
Actions taken: The government announced an investment programme of 0.4 % of GDP each year over 2018-2020 to finance infrastructure in transport and information and communications technologies, as well as some specific housing and tourism projects.
Recommendations: Expand access to EU energy and railway networks. Provide sufficient funding to rural infrastructure projects. Improve inter-modal transport connections.