OECD Economic Surveys Luxembourg

1 OECD Economic Surveys Luxembourg March 2015 OVERVIEW This work is published under the responsibility of the Secretary-General of the OECD. Theopinions expressed and arguments employed herein do not necessarily reflect the officialviews of OECD member document and any map included herein are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundariesand to the name of any territory, city or 978-92-64-23065-1 (print)ISBN 978-92-64-23066-8 (PDF)Series: OECD Economic SurveysISSN 0376-6438 (print)ISSN 1609-7513 (online)OECD Economic Surveys .

2 LuxembourgISSN 1995-3720 (print)ISSN 1999-0782 (online)The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The useof such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israelisettlements in the West Bank under the terms of international credits:Cover to OECD publications may be found on line OECD 2015 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases andmultimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitableacknowledgement of OECD as source and copyright owner is given.

3 All requests for public or commercial use and translation rights shouldbe submitted Requests for permission to photocopy portions of this material for public or commercial use shall beaddressed directly to the Copyright Clearance Center (CCC) the Centre fran ais d exploitation du droit de copie cite this publication as:OECD (2015),OECD Economic Surveys : Luxembourg 2015, OECD Publishing, Economic Surveys : Luxembourg OECD 201511 Executive summary Main findings Key recommendations OECD 20151 EXECUTIVE SUMMARYOECD Economic Surveys : Luxembourg OECD 201512 Main findingsLuxembourg is one of the most prosperous countries in the OECD with very high levels ofwell-being, particularly incomes.

4 The economy, including its financial sector , has weatheredthe crisis well, growth has picked up, supported by sound macroeconomic the financial s large financial sector still playsa pivotal role, although its share in total output has fallen. Product diversification intoinvestment funds, wealth management and insurance is continuing. However, changingfinancial market regulation in Europe, increased international transparency requirementsfor banking and heightened international competition pose challenges.

5 Furtherdiversification of the financial sector into new areas requires investors trust in regulatorssafeguarding financial market stability. Nevertheless, the financial sector might havereached a size where its contribution to GDP growth might fade, and high dependence onone sector poses medium-term productivity and diversifying the Economic outputgrowth has slowed significantly in recent years, reflecting rising structural unemploymentand declining trend productivity growth. Private spending on research and development(R&D) is low and falling, although public R&D spending has been boosted.

6 The secondaryeducation system is hampered by high repetition rates of students; female labour forceparticipation, although it increased, is still low. Enterprise clusters do not yet fully exploitpotential benefits from cooperation between enterprises and research fiscal fiscal position is strong, and the main fiscalchallenges are age-related spending, which is projected to rise by about percentagepoints of GDP by 2030. There is some uncertainty surrounding financial- sector taxrevenues, which can be subject to large fluctuations due to financial market volatility.

7 OECD 20152 EXECUTIVE SUMMARYOECD Economic Surveys : Luxembourg OECD 201513 Key recommendationsStrengthening the performance of the financial sector Continue to monitor financial market risk while using a comprehensive approach to riskassessment that accounts for financial linkages between banks and non-bank financialintermediaries, notably investment funds. Continue efforts to develop resolution plansand to undertake resolvability assessments so that important banks could be resolvedeffectively across borders.

8 For this end, continue to cooperate with regulatory authoritiesin other jurisdictions outside the productivity and diversifying the Economic base Better evaluate the effectiveness of public R&D spending and cluster policies. Strengthen the cooperation between enterprises, University of Luxembourg andresearch institutions in Luxembourg and abroad. In secondary education, reduce grade repetition, provide more school autonomy andbetter monitor education growth To reduce carbon emission, continue substantial investment in public transportinfrastructure, using the receipts from fuel taxation for this purpose.

9 Explore theintroduction of a system of congestion charges. Increase taxes on petrol and diesel togradually eliminate price differentials with neighbouring fiscal pressures Strengthen fiscal planning by introducing a spending review mechanism and link it tothe medium-term budgeting framework. Consider introducing a spending ceiling for thegeneral government. Continue to actively participate in international negotiations on co-ordinated action tocombat tax base erosion and profit shifting of multinational enterprises, includingaction to prevent double non-taxation.

10 Change domestic laws if necessary. OECD 20153 OECD Economic Surveys : Luxembourg OECD 201515 Assessment and recommendations Macroeconomic outlook Strengthening the performance and resilience of the financial sector Fostering the emergence of innovative industries Greening growth OECD 20154 ASSESSMENT AND RECOMMENDATIONSOECD Economic Surveys : Luxembourg OECD 201516In the two decades prior to the crisis, Luxembourg grew twice as fast as the Europeanaverage and per capita incomes climbed to one of the highest in the OECD area (Figure 1).