Liechtenstein is one of the smallest countries in the world, with an area of approximately 62 mi² (160 km²) and a population of just over 38,000 people (as of 2020). In fact, it's location squished between Austria and Switzerland is often omitted on maps as it would simply not fit. There is not a single airport in Liechtenstein, no military, and no currency. Swiss frank is it's official currency and the Swiss National Bank hods the responsibility for Liechtenstein’s monetary policy. Yet, the GDP per capita of Liechtenstein is one of the highest in the world, accumulating at around 175,000 U.S. dollars. At the same time, the U.S. and Switzerland have GDP per capita of approximately 65,000 and 85,000, respectively (as of 2019). What could account for such a good measure of GDP per capita in such a small and, one could even say, unpopular country?
After World War II, Liechtenstein revolutionized its economy. From it's mainly agricultural background, the country transitioned to become an export-oriented state. Moreover, in 1995, Liechtenstein joined European Economic Area (EEA), which enables “goods, services, capital, and persons to move freely” among its member countries. These two aspects allowed for the development of industry and services in Liechtenstein. In 2019, the industry was the biggest sector of GDP, accounting for 45.8% of the economy, while all services accumulated at 54.1%. One of the more well-known Liechtenstein’s manufacturing companies is HILTI–a company supplying precision tools.
Aside from good-quality construction products, Liechtenstein is known in the financial world to be a tax haven. With its flat corporate tax rate of 12.5%, the country attracts many companies to establish offices within its borders. Moreover, holding the Swiss franc, one of the strongest currencies in the world, as a national currency, and providing opportunities for relatively easy economic exchange with Switzerland and European Union countries, makes Liechtenstein even more attractive in the eyes of investors.
Liechtenstein does not disclose a precise number of companies operating in its state; some sources estimate that there are over 4,800 businesses registered in the country, while others claim the number to be around 18,000. Although the government provides the Commercial Register containing the list of companies registered in Liechtenstein, one must know a company’s name or tax number to search it. Moreover, for many years LGT (Liechtenstein’s private bank) was viewed as an organization helping its clients evade taxes. Some of the examples of LGT supposedly helping its clients to hide assets are the cases of James A. Marsch, William S. Wu, Richard M. Chong, and Michael Miskin. A 2008 report by the United States Senate Permanent Subcommittee on Investigations states that “[…] bank [LGT] secrecy laws have served as a cloak not only for client misconduct, but also for bank personnel colluding with clients to evade taxes, dodge creditors, and defy court orders.”
Tax revenue from companies combined with tax revenue from personal income (which is also relatively low), services, and export result in a high GDP per capita. However, it does not mean that the nominal GDP of Liechtenstein is one of the highest in the world - it was, in fact, equal to 6.68 billion U.S. dollars in 2019. In contrast, the U.S. and Switzerland had nominal GDPs of 21.43 trillion and 731.77 billion U.S. dollars, respectively (for 2019). The difference occurs because GDP per capita is GDP divided by population, which is not high in Liechtenstein compared to other countries. GDP per capita is regarded by economists as one of the more accurate measures of standard of living. However, it is not the perfect measure of standard of living. GDP per capita implies the average standard of living, but there are fluctuations that do not hold to the average measure in every country. The same holds for Liechtenstein.