III.

Economy

Monaco is a prosperous country. Living standards are among the highest in the world. Tourism and financial services drive the economy. Each year millions of visitors flock to its beaches, four casinos, performing arts venues, boating facilities, and other attractions. In 2002 Monaco doubled the capacity of its port by installing a massive new floating dock designed to accommodate huge cruise ships.

Monaco’s strict banking secrecy laws and minimal rates of direct taxation have helped it build a profitable banking and finance sector. Citizens of Monaco pay no income tax. Low taxes have prompted many international corporations to establish offices in the principality. However, Monaco’s banking and tax policies have invited sharp criticism from the French government, which has accused the principality of allowing businesses and individuals to evade taxes and launder money in its banks and casinos.

Until 1962, Monaco refused to impose any income taxes on residents or international corporations with headquarters in the country. Wealthy tax exiles from France, among other nations, took up residence in Monaco, knowing their money was safe. Monaco’s status as a tax haven provoked a crisis with France, leading to a compromise arrangement in which noncitizens would be required to pay French income-tax rates and taxes would be levied on corporations with substantial business dealings outside Monaco.

Today, income taxes, in addition to sales taxes, have become an important source of government revenue. Monaco also generates revenue from state-controlled monopolies on the sale of tobacco and colorful postage stamps, which are popular among collectors.

In an effort to further diversify its economy, Monaco has developed some light industries, mainly in Fontvieille. They include pharmaceuticals, perfumes and cosmetics, electronic equipment, paper and cards, clothing and textiles, and plastic goods.

Monaco is in a customs union with France, an arrangement that governs the customs, postal services, telecommunications, and other economic activities. As in France, Monaco’s unit of currency is the euro, the monetary unit of the European Union (EU), although Monaco is not itself an EU member. Monaco’s economy relies heavily on migrant labor, mainly from France and Italy.