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Officially known as the Grand Duchy of Luxembourg,
this small landlocked country has for decades featured low unemployment, steady growth, and minimized inflation.
Over the past 20 years or so, the government of Luxembourg has implemented a number of policies
that has strengthened the country’s economic position and standing worldwide.
Thanks to that and a few other factors, today Luxembourg is ranked as one of the richest in the world.
Today we are going to be looking at just how rich Luxembourg is and how they achieved this wealth, but first a little background.
Luxembourg is one of the smallest states in the European Union with less than 1,000 square miles, but its influence and power are disproportionate to its size.
It’s also one of the least populated countries in Europe with about 614,000 people, but it also has the highest population growth rate worldwide.
Luxembourg is the only Grand Duchy in the world and is ruled by a Grand Duke or Grand Duchess, currently Grand Duke Henri.
Although the head of the government is a constitutional monarch, Luxembourg is considered a full democracy with an elected parliament.
This country has a long history dating back to the year 963,
and it has risen into prominence in recent years as a founding member of the European Union, NATO, and the United Nations.
It is also the seat of the European Court of Justice, which is the highest judicial authority in the EU.
You can find out much more about this fascinating country by watching our video of the 15 things you didn’t know about Luxembourg,
just click in the top right corner to check it out.
In recent years, Luxembourg has been enjoying a strong and prosperous economy, so let’s take a look now at why that’s the case.
The foundation of Luxembourg’s stable economy is built on the steel industry, which has been thriving since its inception in the late 1800s.
This is one of the state’s highest earners in its flourishing industrial sector.
The other side of the story is the financial sector, which became a greater focus thanks to the enactment of favorable tax laws in the early 20th century.
More specifically, the Holding Company Law was established in 1929,
which required all holding companies to cough up a Corporate Income Tax of 25% of the total share capital value.
As a result, there was a huge influx of capital streaming into Luxembourg, which in turn led to the region’s financial sector boom.
Diversification within the financial sector allowed it to form into the economic powerhouse it is today.
Currently, Luxembourg is considered to be a leader in multiple areas of the financial industry, including insurance, investment funds, and most notably, banking.
This, added to the region’s perceived political as well as economic stability, has made this country the go-to destination for large global corporations.
For example, eBay, Netflix, iTunes, and Skype have all set up their European headquarters within its boundaries, which is a bit surprising given the country’s size.
Its small size might seem to be a major disadvantage, but it actually works in favor of this landlocked state, economically speaking.
Due to this, there is minimal need for infrastructure and public roadwork.
Similarly, with a rather small military and police force, this region spends very little on military programs.
Its government also spends very little of its assets on public upkeep and therefore holds on to a huge chunk of its revenue.
This is one of the main reasons why this region is extensively rich.
Given this financial setup, the government instead invests heavily to make sure that the financial environment is tailored to suit foreign investments
and to ensure that the tax rate is maintained at a bare minimum.
This, added to its highly educated populace, has led to a large number of private entities in the country, especially within the transportation, banking, and communications industries.
To answer this question, let’s start by looking at its nominal GDP Per Capita.
It stands at $125,364, the highest in the world.
The country’s total GDP is right around 71 billion dollars, which ranks as 94th in the world.
To put this figure in perspective, the United States’ GDP per capita is about half that of Luxembourg’s despite it having a population 600 times that of this tiny region.
This is evidence of Luxembourg’s economic brilliance.
Luxembourg also ranks second in the world when it comes to the residents’ average income.
There is an estimated annual income of around 67,000 US dollars for every Luxemburg resident.
This is just about $5,500 behind the average income for the oil rich nation of Qatar in spite of Luxembourg’s obvious lack of natural resources.
As a country, Luxembourg does have over $12 billion in debt, a figure that has climbed rapidly as less than 10 years ago the debt was closer to 7 billion.
However, Luxembourg has more than enough state assets to cover this amount if necessary, so the debt isn’t a primary concern.
When it comes to individual wealth, a whopping 50,612 households in Luxembourg are worth at least one million dollars.
This translates to 22.7% of the population—almost double that of Switzerland.
Out of these, 725 individuals qualify as being ultra-rich, meaning they have at least $30 million of investable assets.
Surprisingly, there are no Luxembourgers [Luxem-burgers] who are billionaires.
However, there are about a dozen billionaires who live there part-time.
It’s clear that those in Luxembourg are living better than most of us; however, there is another side to this story of prosperity.
On the flip side, it is important to note that there are some rather dubious reasons behind this region’s significantly high GDP.
The top of the list is the fact that it is considered to be a tax haven for the rich and powerful people.
This allows it to attract a good number of financial companies that provide services to all of Europe.
As such, the financial sector contributes a massive 28% towards the state’s overall GDP in addition to employing 11% of the country’s total labor force.
The region’s banking industry is responsible for up to 85% of the area’s economy.
Also, 60% of the labor force are foreigners.
This is significant because the economic output they generate is included in the country’s total,
but they are not included in the population when calculating the per capita gross domestic product.
So you can see how this would perhaps lead to a distorted view of how rich Luxembourg really is simply based on the GDP,
but there is no questioning the luxurious lifestyle that many in the country live.
As a testament to this country’s vast pool of financial resources, there are numerous luxuries available in this region.
For instance, Luxembourg is known to attract a good number of luxury brand outlets largely due to its overly rich population.
With such a high average annual income, it should not come as a surprise that it has a number of high-end stores that are typically found in much larger countries.
These stores include Lacoste, Marc Jacobs, Gucci, Montblanc, and Chanel.
The country is also home to some of the priciest luxury experiences for travelers.
One of the most reputable luxury attractions is the Valley of the Seven Castles, which is situated in the outskirts of Eisch.
It is a stunning valley of fancy, historic castles ending at the Belgian border and starting at the Alzette.
Other notable luxury attractions include the Mondorf Spa, Le Place d’Armes, and L’Hotel de L’Abbaye.
An estimated $1.1 million is spent yearly on luxury items in Luxembourg… and as we have seen, there is money to blow in this prosperous nation!
There is no understating Luxembourg’s vast pool of financial resources.
With the highest nominal per capita GDP and 700 people on the ultra-rich list,
it is easy to see why this country is ranked among the top richest regions in the world.
However, its success is majorly attributed to its service sector and especially the banking industry.
That’s why 'Luxembourgeois' might be a more befitting name for this super-rich landlocked microstate.
However, as long as it maintains its tax haven status, the wealthy will be drawn to it, further boosting the rock-solid economy likely for years to come.
And Aluxers, if you'd like to dig a little deeper into the nature of the world's economies
check out the book How an Economy Grows and Why It Crashes by bestselling author and economic expert Peter Schiff.
He takes a close look at the intricacies involved in economic growth, the source of inflation, the importance of trade, and much more.
This book is available on Audible for $20 but save your money.
Just go to alux.com/freebook and sign up so that you can get the audiobook version for free thanks to our partnership with Audible!
Now before we wrap this up we'd like to know:
Let us know what you think in the comments.
And, of course for sticking with us until the end, here's that bonus you're waiting for:
Luxembourg is the 5th most expensive country in Europe specifically in regards to food and beverages.
The price of non-alcoholic drinks and beverages is higher than in most European nations.
On average, the residents pay 116% of Europe’s average price.
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