Economic Development and Land Issues in Liechtenstein: Historical Dynamics, Current Challenges and Suggested Fiscal Remedies

Despite its miniscule size and lack of exportable natural resources, in the course of the last century Liechtenstein has become one of the wealthiest countries (per capita) in the world. The rapid growth has resulted in a very significant increase in land values throughout the Principality. However, contrary to the experience of many larger economies, the socioeconomic effects of the increasing land values in Liechtenstein have so far been relatively benign. This paper explores some of the key reasons behind the country’s economic success, highlighting in particular the advantages of Liechtenstein’s size for its foreign policy, domestic institutions and private enterprises. It also demonstrates that Liechtenstein’s geographical location, favourable agreements with neighbours, type and pace of growth, as well as various elements of legislation have all helped to mitigate the development of landrelated socioeconomic issues. There has been a growing realization that these factors might be insufficient in preventing unsustainable urban sprawl, environmental degradation, decreasing economic opportunities, worsening housing affordability and increasing inequalities. As a potential remedy to these problems, the authors suggest a reform aimed at shifting at least some of the fiscal burdens from labour and businesses to the unimproved land values that are created by public investments and community’s efforts.