Estonia - Politics, government, and taxation

Estonia is a democratic republic with the legislative power vested in a Riigikogu (a 101-member unicameral , or single-chambered parliament) elected by universal suffrage for 4-year terms. The Riigikogu appoints the cabinet, which is led by the prime minister, who is the head of government. The president, who is elected by the Riigikogu and who appoints the prime minister, has limited executive power. Political parties include the center-right Fatherland Union (Isamaaliit), the Reform Party (RE), the Moderates, the Center Party, the left-centrist Coalition Party, the agrarian Rural Union (KMU), the Country People's Party, and the mostly ethnic Russian United People's Party (UPPE). In 1999 the opposition Coalition Party received the highest percentage of votes (23.4 percent), but the Fatherland Union, led by Prime Minister Mart Laar (16.1 percent), was able to form a coalition with the RE (15.9 percent) and the Moderates (15.2 percent) to win the elections. Particular policies may spur political feuds but the major Estonian parties are committed to economic stability, openness, and EU integration.

Economic reforms have curbed the government's role in the economy due to the currency board regime and the legal requirement of a balanced budget. The tariff regime was liberalized dramatically by removing import tariffs (excluding agricultural products from certain countries) and by restricting excise taxes to several goods. Yet the state exerts considerable influence with the public sector accounting for roughly half of gross domestic product and the public consuming over one-fifth of the total gross domestic product.

The average income tax burden for citizens was 26 percent in 1999 but the government was trying to reduce it by 2001. Reductions were expected in the form of tax breaks for families with a third child and an increase in the minimum taxable personal income base. Amendments sanctioning the taxation of dividends and other income earned by foreign companies in Estonia were passed in 2000.