IEB Report

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Competitiveness of the Economy and the Fiscal System

IEB Report 2/2024: Competitiveness of the Economy and the Fiscal System

In a globalized world, business competitiveness is particularly important; within it, taxes can play a key role. When can a tax system be considered competitive? One easy and immediate answer has to do with the level of taxation: a low tax burden compared with other countries would ensure a competitive tax system. But the issue is somewhat more complex. First, economic development also requires quality public services and infrastructure, which can hardly be provided without funding. Second, the tax structure also matters, i.e. the weight of the various taxes, as well as each one’s specific design, in which the nominal tax rate is an important factor. Indeed, along with other legal aspects, it is what ultimately determines the effective tax rate, which can condition the establishment of companies or attraction of foreign direct investment. And third, in addition to the direct tax burden, there are also compliance costs1, which are in part related to how many levels of government have regulatory powers.