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Competitiveness of the tax system and economic growth

Author

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  • Christl, Michael
  • Köppl-Turyna, Monika

Abstract

This paper examines whether the design of a country's tax system matters for economic growth using the Tax Foundation's International Tax Competitiveness Index (ITCI), a composite of more than 40 legislated tax-policy variables spanning corporate, individual income, consumption, property, and cross-border tax rules. Exploiting within-country variation across 23 European economies over 2014-2024, we estimate two-way fixed-effects panel regressions and dynamic distributed-lag specifications. Three findings emerge. First, improvements in aggregate tax competitiveness are positively and significantly associated with real GDP per capita growth, robust to a wide range of controls. Second, this aggregate effect is driven entirely by the corporate tax pillar; no other component displays a significant growth effect. Third, the corporate tax effect materializes contemporaneously and accumulates over time, with a statistically significant three-year cumulative effect of approximately 0.16 percentage points per one-point improvement in the corporate tax score. These results suggest that the full architecture of the corporate tax system, not merely the headline statutory rate, is what matters for growth.

Suggested Citation

  • Christl, Michael & Köppl-Turyna, Monika, 2026. "Competitiveness of the tax system and economic growth," GLO Discussion Paper Series 1754, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1754
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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