Research Paper 33: Tax Competitiveness and Economic Growth
Research Paper 33: Competitiveness of the tax system and economic growth
Prof. Dr. Monika Köppl-Turyna
Director
Michael Christl, Loyola University Andalusia, Seville, Spain
The ongoing budget negotiations present the Austrian federal government with a twofold challenge. Public finances must be consolidated in a sustainable way, while at the same time ensuring that investment, innovation, and growth in the country are not hindered. A research paper by EcoAustria shows that the design of the tax system plays a central role in this regard- particularly in the area of corporate taxation.
The analysis by Monika Köppl-Turyna and Michael Christl examines the relationship between tax competitiveness and economic growth in 23 European and comparable OECD countries from 2014 to 2024. The benchmark used is the Tax Foundation’s “International Tax Competitiveness Index,” which takes into account more than 40 tax policy variables - including corporate taxes, income taxes, consumption taxes, wealth-related taxes, and cross-border tax rules.
The results show that improvements in tax competitiveness are positively correlated with real GDP growth per capita. However, this effect is driven almost exclusively by corporate taxation. Other areas of the tax system - such as income, consumption, or wealth taxes - do not show a comparably robust effect on growth in the analysis.
The corporate income tax rate is not the only decisive factor here. Rather, depreciation rules, loss carryforward, the tax treatment of research and development, the complexity of the tax system, and the tax treatment of equity and debt are also relevant to growth. A competitive corporate tax system reduces barriers to investment, improves the allocation of capital, and strengthens companies’ capacity for innovation.
Against the backdrop of budget negotiations, this leads to a clear conclusion: Consolidation measures should be designed in such a way that they do not undermine the tax framework for investment. While higher tax burdens or added complexity may generate revenue in the short term, they can weaken growth, investment, and thus the future tax base in the medium to long term. Sustainable fiscal policy should therefore combine spending discipline and structural reforms with a tax system that facilitates - rather than hinders - investment, innovation, and growth.
