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Economy

In 2022, Iceland was the eighth-most productive country in the world per capita (US$78,837), and the thirteenth-most productive by GDP at purchasing power parity ($69,833). About 85 percent of the total primary energy supply in Iceland is derived from domestically produced renewable energy sources. Use of abundant hydroelectric and geothermal power has made Iceland the world's largest electricity producer per capita.

Historically, Iceland's economy depended heavily on fishing, which still provides ~20% of export earnings and employed 7% of the workforce. The economy is now more dependent on tourism, but important sectors continue to be: fish and fish products, aluminium, and ferrosilicon. Iceland's economic dependence on fishing is diminishing, from an export share of 90% in the 1960s to 20% in 2020.

Until the 20th century, Iceland was a fairly poor country. Whaling in Iceland was historically significant. It is now one of the most developed countries in the world. Strong economic growth led Iceland to be ranked third in the United Nations ' Human Development Index report for 2021/2022. According to the Economist Intelligence Index of 2011, Iceland had the second-highest quality of life in the world. Based on the Gini coefficient, Iceland also has one of the lowest rates of income inequality in the world, and when adjusted for inequality, its HDI ranking is sixth. Iceland's unemployment rate has declined consistently since the crisis, with 4.8% of the labour force being unemployed as of June 2012, compared to 6% in 2011 and 8.1% in 2010.

The national currency of Iceland is the Icelandic króna (ISK). Iceland is the only country in the world to have a population under two million yet still have a floating exchange rate and an independent monetary policy. A poll released on 5 March 2010 by Capacent Gallup showed that 31% of respondents were in favour of adopting the euro and 69% opposed. Another Capacent Gallup poll conducted in February 2012 found that 67.4% of Icelanders would reject EU membership in a referendum.

Iceland's economy has been diversifying into manufacturing and service industries in the last decade, including software production, biotechnology, and finance; industry accounts for around a quarter of economic activity, while services comprise close to 70%. The tourism sector is expanding, especially in ecotourism and whale-watching. On average, Iceland receives around 1.1 million visitors annually, which is more than three times the native population. 1.7 million people visited Iceland in 2016, 3 times more than the number that came in 2010. Iceland's agriculture industry, accounting for 5.4% of GDP, consists mainly of potatoes, green vegetables (in greenhouses), mutton, and dairy products. The financial centre is Borgartún in Reykjavík, which hosts a large number of companies and three investment banks. Iceland's stock market, the Iceland Stock Exchange (ISE), was established in 1985.

Iceland is ranked 27th in the 2012 Index of Economic Freedom, lower than in prior years but still among the freest in the world. As of 2016, it ranks 29th in the World Economic Forum 's Global Competitive Index, one place lower than in 2015. According to the Global Innovation Index, Iceland is the 20th most innovative country in the world in 2022 and 2023. Unlike most Western European countries, Iceland has a flat tax system: the main personal income tax rate is a flat 22.75% and combined with municipal taxes, the total tax rate equals no more than 35.7%, not including the many available deductions. The corporate tax rate is a flat 18%, one of the lowest in the world. There is also a value added tax, whereas a net wealth tax was eliminated in 2006. Employment regulations are relatively flexible and the labour market is one of the freest in the world. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management. Like other welfare states, taxpayers pay various subsidies to each other, but with spending being less than in most European countries.

Despite low tax rates, agricultural assistance is the highest among OECD countries and a potential impediment to structural change. Also, health care and education spending have relatively poor returns by OECD measures, though improvements have been made in both areas. The OECD Economic Survey of Iceland 2008 highlighted Iceland's challenges in currency and macroeconomic policy. There was a currency crisis that started in the spring of 2008, and on 6 October trading in Iceland's banks was suspended as the government battled to save the economy. An assessment by the OECD 2011 determined that Iceland has made progress in many areas, particularly in creating a sustainable fiscal policy and restoring the health of the financial sector; however, challenges remain in making the fishing industry more efficient and sustainable, as well as in improving monetary policy to address inflation. Iceland's public debt has decreased since the economic crisis, and as of 2015 is the 31st-highest in the world by proportion of national GDP.