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Economic Reforms in Israel

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The Palgrave International Handbook of Israel


Israel’s dynamic, innovative, and highly developed economy progressed through various stages during the last 70 years. Starting from a Communist-style planning economy in the 1950s, it saw periods of rapid growth in the 1960s, stagnation in the 1970s, and inflation in the 1980s. The latter was countered by drastic reforms of the market structure and liberalization of fiscal and monetary policies in the 1990s. The majority of economic reforms in Israel thus aimed at reducing the government’s direct involvement in the economy and establishing a neoliberal market system. To this end, many reforms sought to cutting state spending, which was easier said than done as it had been the main precursor for economic growth and the root of Israel’s economic pitfall until the 1990s. This becomes especially evident when considering that two factors had over proportional influence on Israel’s economic development, and both proved a severe challenge as well as a major catalyst for economic performance: the reception of successive waves of Jewish immigration and the need to continuously allocate a significant portion of the state budget to national security expenditures as a reaction to or in preparation for conflict in an inhospitable region.

The liberalization of the economy eventually succeeded in securing private and foreign capital flows into the economy, and during the 2000s/2010s a rapid development toward a high-income economy started, driven by startups and a strong high-tech sector. However, Israel’s unique economic journey also profoundly shaped the composition of its society. While liberal reforms increased economic freedom, cut state spending, and generated new revenues that sustained the nation-building effort, they too created economic crises, brought unemployment, and deconstructed the prior welfare system, resulting in higher income inequality and disparity between urban areas and the countryside today. Israel’s challenge for the current decade will be welfare creation without increased state spending and limitations to the private sector. Increased trade, energy politics, and catering to global investors may be policy changes that will soothe domestic economic needs.

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Correspondence to Stefan Wolfrum .

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© 2022 The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd.

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Wolfrum, S. (2022). Economic Reforms in Israel. In: Kumaraswamy, P.R. (eds) The Palgrave International Handbook of Israel. Palgrave Macmillan, Singapore.

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  • Publisher Name: Palgrave Macmillan, Singapore

  • Print ISBN: 978-981-16-2717-0

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