The Index of Economic Freedom classifies Croatia as an almost “Mostly Free” country.
Matej Hittner, ex-President of the Centre for Public Policy and Economic Analysis (CEA)
Daniel Hinšt, member of the Executive Board of CEA
Croatia’s further improvements
In February 2025, the US think tank Heritage Foundation released its annual Index of Economic Freedom, revealing Croatia’s further moderate improvements. The country’s score increased by 1.5 points, from 67.2 to 68.7 (out of 100). While Croatia remains in the “Moderately Free” category, it is now closer than ever to achieving “Mostly Free” status, beginning with a threshold score of 70.
With 68.7, Croatia ranks as the 39th freest economy globally, significantly above the world average (59.7) and slightly above the regional average (68.5). Therefore, Croatia is in the global TOP 40.
Many policy areas
The assessment is based on 12 policy areas of economic freedom, covering property rights and fiscal, regulatory, labor, monetary, trade, and other policies.
Source: Heritage Foundation, 2025 (Croatia)
When examining each category, some of the data remains embedded within the metadata that is not explicitly detailed in the report. However, the general assessment appears accurate, and Croatia’s economy shows an overall trend of increasing economic freedom.
Certain categories, such as Trade Freedom, are related to the alignment with the EU trade policy, which should result in relatively similar scores. The report says that “the trade-weighted average tariff rate (common among EU members) is 2.7 percent, and more than 600 EU-mandated nontariff measures are in force along with an additional eight country-specific nontariff barriers.“ also, Croatia’s “monetary freedom score is below the world average“, which is methodologically associated with high inflation rates, besides other reasons.
Additionally, it is important to acknowledge that the data always has up to two years of distance from the publishing date, as disclosed in the methodology. Considering Croatia’s strong economic performance in recent years (real GDP growth and the decrease of public debt to GDP) and the implementation of further free market reforms in some (still limited) areas, it is reasonable to expect an upward trajectory in its economic freedom score. If such trends continue without some counter-effects, Croatia could surpass the 70-point threshold in the near future – moving into the respectable “Mostly Free” category.
Free market reforms
Rather than exhaustively analyzing each factor contributing to Croatia’s overall score, this article will focus on public policy measures that could further enhance Croatia’s economic freedom. These recommendations are drawn from CEA’s prior policy proposals within the project Croatia 2025. Also, the Heritage Index provides criteria that can outline actionable steps to accelerate Croatia’s progress toward greater economic freedom.
Breakdown of Key Economic Freedom Categories and Reforms
Property Rights (81.3/100)
Croatia’s property rights protections are assessed as strong and provide a stable foundation for investment and economic security. However, inefficiencies still pose challenges.
• Enhancing further efficiency of the land registry system
Croatia has a lingering problem of a mismatch between land registry data and cadastral data. Real estate ownership can be a hurdle for private persons to determine, although significant efforts are being made. Platforms such as Zajednički informacijski sustav zemljišnih knjiga i katastra, a.k.a. Organised land portal, is an excellent tool that needs further updates via boots-on-the-ground property measurements and by creating a mobile app.
Government Integrity (53.4/100)
Corruption remains a significant concern, limiting economic efficiency and investor confidence.
• Introducing AI-based oversight in public procurement and other government procedures
• Increasing penalties for corruption-related offenses
• Strengthening independent anti-corruption bodies with more investigative powers could help improve government integrity.
Judicial Effectiveness (71.4/100)
While Croatia’s judiciary is considered relatively independent, court backlogs and slow case resolution still hinder its effectiveness and public trust. Furthermore, high-profile corruption cases involving judicial entities show significant corrosion that needs to be mended. Corruption is seen as a major problem by the wider public.
- Investing in digital case management systems and increasing judicial capacity would improve the efficiency of legal proceedings
- Around half of open judicial procedures are property/ownership related; thus, the problem must be solved in sync with the proposed Property rights policies by increasing real estate ownership transparency (also, the whole “bundle of rights”, including all encumbrances)
- Increase the power and rights of independent judiciary
- Closer collaboration and increasing the influence of the European prosecutor’s office when dealing with domestic corruption
- Efforts to increase the societal prestige of judicial employees
Tax Burden (77.3/100)
Croatia’s tax score could be optimized by:
- Implementing a flat income tax rate of 15% with a maximum health contribution (payroll) of 15%.
- Lowering the top corporate income tax to 15% and transforming it into an Estonian-style distributed profits tax.
- Abolishing capital gains tax, real estate transfer tax, inheritance tax, and hospitality consumption tax.
Government Spending (35.1/100)
Excessive public spending (around 46% of GDP) continues to limit economic flexibility and opportunities. Therefore, it should be lowered to a maximum of 42% to be more closely aligned with comparable countries of Central and Eastern Europe (Baltic States, etc.).
• Improving spending efficiency by reducing the wage bill, excessive welfare and national subsidies, and privatizing non-essential state-owned enterprises could lead to better fiscal management.
It should be noted that the usage of EU funds contributes negatively to the score itself while it materially improves the Croatian economy. Therefore, one should carefully assess to what extent spending should be cut since Croatia is a net receiver of EU funds.
Fiscal Health (90.3/100)
Croatia maintains strong fiscal discipline, and in 2025, the public debt is below 60% of the GDP – the gold standard for Eurozone members.
Business Freedom (80.4/100)
The regulatory environment is generally favorable, but improvements could be made.
- Further administrative burden reduction and market liberalization focused on complex procedures and excessive bureaucracy.
Labor Freedom (69.1/100)
Rigid labor laws hinder employment flexibility.
- Introducing more flexible labor contracts while ensuring workers’ income protections during frictional unemployment and activation policies (flexicurity model)
- Expanding state-sponsored vocational training programs aligned with industry demands
- Liberalizing re-entry of pensioners into the labor market through tax incentives
Monetary Freedom (66.6/100)
- Contribute to the prevention and reduction of inflation by downsizing government spending, including wage bill controls.
- Gradual lowering of national subsidies that distort the market process
Trade Freedom (79.6/100)
- Croatia should abolish its nation-specific non-tariff barriers and advocate the reduction of hundreds of EU-regulated non-tariff barriers.
Investment Freedom (60.0/100)
Foreign investment is welcomed, and several policies could increase the score:
- Aligning investment policies with best practices of the leading EU economies
- Ensuring long-term policy consistency to maintain investor confidence would enhance investment freedom.
Financial Freedom (60.0/100)
The government maintains influence in the banking sector (Hrvatska poštanska banka and Croatia Banka). A prudent measure would be to emulate the policies of European countries with a higher score, such as the Netherlands and Czech Republic, both rated 80 (out of 100).
Further reading on the Index of Economic Freedom: Daniel Hinšt on the Croatian Index of Economic Freedom (in Croatian)
