Competitiveness of the tax system and economic growth

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.