Many multinational companies, such as Google and Facebook, have their European headquarters in Ireland. Why? Ireland has low corporate taxes.
In fact, a country’s tax structure can have a significant impact on its economic performance. Countries with low marginal tax rates encourage business investment, while countries with high taxes may drive investment elsewhere.
This Markets in a Minute from New York life Investments looks at international tax competitiveness among countries within the Organization for Economic Co-operation and Development (OECD).
How is Tax Competitiveness Measured?
The Tax Foundation measured international tax competitiveness using two aspects of tax policy: competitiveness and neutrality.
Competitiveness measures how low a country’s marginal tax rates are. On the other hand, a neutral tax code raises the most revenue with the fewest economic distortions. This means that it doesn’t favor consumption over savings, which is what happens with investment or wealth taxes. It also means there are few or no tax breaks for specific business or individual activities.
With these two aspects in mind, the Tax Foundation looked at five types of taxes:
Individual income taxes
According to research from the OECD, corporate taxes are most harmful for economic growth while taxes on immovable property (real estate) have the smallest impact.