OECD Economic Surveys: Luxembourg 2019

Description

Luxembourg is one of the most prosperous economies in the OECD. However, prosperity and quality of life cannot be taken for granted. This Survey focuses on three main challenges. The first concerns housing: strong population growth and supply constraints have made prices surge, which worsens affordability and creates vulnerabilities for some households and some banks. Tackling housing supply constraints and increasing the supply of social rental housing are key to improving housing affordability. The second challenge is reviving productivity growth, which will require supporting viable non-frontier firms to catch up and to help frontier firms to innovate more. The third challenge is to achieve a more sustainable and inclusive growth. This would require, among other measures, fiscal reforms to address rising pension expenditure and tilt revenues towards environmental and property taxation Basic Statistics of Luxembourg, 2018 Executive Summary Key Policy Insights Growth has been solid, but there are risks ahead Strengthening financial regulation to address risks External risks to the large financial sector call for enhanced monitoring Macroprudential tools can help contain soaring house prices Luxembourg has become a gateway for fintech and big tech firms Large cryptoasset trading platforms raise unfair trading concerns Enforcement against international corruption needs to be stepped up Fiscal reforms for inclusive growth and sustainability The fiscal position is strong, but ageing poses a long-term challenge Further adjusting corporate taxation to a globalised world Improving work incentives and diversifying tax bases Reviving productivity growth in Luxembourg Understanding productivity developments Evaluating and adjusting diversification efforts Reviving productivity growth for firms below the frontier Reducing the share of zombie firms Lessening current skill shortages and anticipating future ones Raising the productivity contribution of professional services Stimulating the innovation engine to push the frontier Embracing new, disruptive technologies Incentivising more firms to invest in R&D Avenues for greener growth There is scope to further reduce CO2 emissions, especially from transport Harnessing finance for the transition to a low-carbon economy References Annex. Progress in main structural reforms Thematic Chapter Chapter 1. Policies for a more efficient and inclusive housing market Population growth and constrained supply diminish housing affordability Demographic growth has exceeded housing supply Price developments reflect limited use of available land Increasing the supply of housing Spatial planning instruments fail to prevent land hoarding Improving co-ordination in spatial planning and infrastructure provision New construction Administrative barriers Municipalities and other public promoters Densification measures Making the access to housing more equitable Tax preference for homeownership Measures to expand the stock of social housing Social housing should be targeted to those most in need Affordable private rental sector References