Competitiveness of the tax system and economic growth

Michael Christl and Monika Köppl-Turyna

No 1754, GLO Discussion Paper Series from Global Labor Organization (GLO)

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.

Keywords: tax competitiveness; corporate taxation; economic growth; growth regressions (search for similar items in EconPapers)
JEL-codes: E62 H20 H25 O40 O43 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:1754

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