The Persian Gulf conflict has lifted energy prices, prompting concerns that global economic growth will decelerate. In this environment, policymakers need tax systems that raise revenue efficiently while minimizing damage to productivity and investment. Recent research highlights corporate‑tax competitiveness as a decisive factor for sustaining growth.
OECD growth outlook
- The OECD’s June projection foresees global GDP growth slowing to 2.1 %–2.8 % in 2024 and 1.8 %–3.1 % in 2025, down from 3.4 % projected for 2025.
- The slowdown is attributed mainly to higher energy prices and disruptions from the Gulf conflict, which offset strong investment and trade linked to artificial intelligence.
- In a worst‑case scenario, several economies could slip into recession, deepening public debt as revenues fall and spending rises.
- The United States is expected to outpace the OECD average, with growth of 2 % in 2024 and 1.8 % in 2025 under an optimistic resolution of the conflict.
Corporate tax competitiveness and growth
The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures how efficiently tax systems support long‑term capital formation and economic growth. The index finds that:
- More competitive tax systems are associated with faster GDP per‑capita growth.
- The corporate‑tax component drives the relationship: a one‑standard‑deviation improvement in the corporate score (≈ 14.3 points) translates to ≈ 1 percentage‑point higher annual GDP per‑capita growth, or 2.29 percentage points over three years.
ITCI corporate scores (2025)
| Country | Corporate ITCI Score | Rank |
|---|---|---|
| Latvia | 100 | 1 |
| United States | 71 | 9 |
| Germany | 54.3 | 30 |
| Japan | 48 | 35 |
| France | 28.5 | 140 (last) |
- The United States ranks 9th, 16.7 points ahead of Germany and 23 points ahead of Japan.
- France holds the lowest corporate score among the 140 economies evaluated.
What drives the corporate score
The ITCI evaluates three sub‑categories:
- Top marginal corporate income tax rate – lower rates generally improve competitiveness.
- Cost recovery – the ability to deduct investment costs (depreciation, amortization, loss offsets, inventory treatment). The U.S. ranks 3rd in this sub‑category, helped by recent expensing provisions.
- Incentives and complexity – includes R&D credits, patent boxes, digital service taxes, and other special rates. The U.S. ranks 12th here, reflecting moderate complexity.
Recent reforms and ranking changes
- The 2017 Tax Cuts and Jobs Act (TCJA) lowered the U.S. corporate rate, moving the country from the highest in the OECD to a mid‑range position.
- The 2022 “One Big Beautiful Bill Act” (OBBBA) expanded expensing, boosting the U.S. cost‑recovery score.
- Overall, the United States improved its ITCI ranking from 29th in 2014 to 14th in 2025.
- Other countries with notable improvements include Canada, Greece, Hungary, and Iceland, many of which have adopted expensing rules similar to the U.S.
- Countries that slipped in the rankings—such as Colombia, Poland, Belgium, Chile, and the Czech Republic—experienced adverse changes to their business‑tax regimes.
Policy implications
- Broadening the tax base and reducing tax expenditures can lower rates while maintaining revenue, enhancing neutrality and reducing administration costs.
- Simplifying corporate tax structures—especially around cost recovery and incentives—helps firms allocate resources to their most productive uses.
- Maintaining a competitive corporate tax environment is increasingly important for long‑term growth, especially as many advanced economies confront aging populations, generous pension systems, and heightened defense spending.
In sum, the evidence suggests that a well‑designed, competitive corporate tax system is a key lever for sustaining robust economic growth amid uncertain macro‑economic conditions.
Source article: taxfoundation.org
