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Mapped: International Tax Competitiveness by Country

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International Tax Competitiveness

International Tax Competitiveness

This infographic is available as a poster.

Mapped: International Tax Competitiveness by Country

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:

  • Corporate taxes
  • Individual income taxes
  • Consumption taxes
  • Property taxes
  • Cross-border 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.

International Tax Competitiveness, Ranked

Here is how the OECD countries rank on their international tax competitiveness. A low score means the country’s taxes are relatively less competitive, while a score of 100 indicates the most competitive tax code among OECD countries.

CountryOverall RankOverall Score
🇪🇪 Estonia1100.0
🇱🇻 Latvia285.1
🇳🇿 New Zealand381.3
🇨🇭 Switzerland478.4
🇱🇺 Luxembourg576.5
🇱🇹 Lithuania676.5
🇨🇿 Czech Republic775.5
🇸🇪 Sweden872.9
🇦🇺 Australia971.3
🇳🇴 Norway1070.6
🇸🇰 Slovak Republic1169.3
🇳🇱 Netherlands1269.2
🇭🇺 Hungary1369.0
🇮🇱 Israel1467.6
🇫🇮 Finland1567.4
🇩🇪 Germany1667.2
🇹🇷 Turkey1766.7
🇦🇹 Austria1865.7
🇮🇪 Ireland1964.7
🇨🇦 Canada2064.6
🇺🇸 United States2162.4
🇬🇧 United Kingdom2261.8
🇧🇪 Belgium2361.6
🇯🇵 Japan2461.5
🇸🇮 Slovenia2561.3
🇰🇷 Korea2660.6
🇨🇱 Chile2758.2
🇩🇰 Denmark2857.9
🇬🇷 Greece2957.5
🇪🇸 Spain3057.1
🇨🇴 Colombia3155.0
🇮🇸 Iceland3253.7
🇲🇽 Mexico3352.5
🇵🇹 Portugal3449.0
🇫🇷 France3548.7
🇵🇱 Poland3645.7
🇮🇹 Italy3744.6

Costa Rica joined the OECD in 2021 and was not included in the ranking due to data availability.

For the eighth year in a row, Estonia has the most competitive taxes. The country has a 20% corporate tax that only applies to profits when they are distributed to shareholders, and property tax that only applies to the land value. Switzerland, one of the world’s biggest tax havens, ranks fourth. It boasts a low, broad-based consumption tax of 7.7% and an individual income tax that partially excludes capital gains from taxation.

Meanwhile, the U.S. falls in the middle of the pack for international tax competitiveness. It allows for full expensing for business investments in machinery. However, a weakness is that the states’ sales taxes apply to only a third of the potential tax base on average. This is largely due to the fact that most personal services are exempt from sales tax.

Italy has the least competitive taxes. The country has a wealth tax on financial assets and real estate assets held abroad, and a financial transaction tax on assets when they are sold. Not only that, it takes businesses an estimated 169 hours to comply with the individual income tax.

Balancing Budget and Competition

While many factors contribute to economic performance, tax structure does play a role. Governments face the task of collecting sufficient revenue to meet their budgetary requirements, while also maximizing their international tax competitiveness. These tax structures are constantly evolving.

Starting in 2023, 137 countries—including Ireland—have agreed to a global minimum tax rate of 15% on large multinational firms. The agreement aims to stop a “race to the bottom” on corporate taxation in order to attract foreign investment. Notably, the OECD estimates this could raise $150 billion in additional global tax revenues every year.

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Markets in a Minute

Identifying Trends With the Relative Strength Index

When is the S&P 500 Index considered overbought or oversold? The relative strength index may offer some answers to identifying market trends.

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Identifying Market Trends: The Relative Strength Index

What happens when the S&P 500 Index enters oversold territory? Does the market reverse, or continue on this trend?

A widely-used momentum indicator, the relative strength index (RSI) may offer some insight. The RSI is an indicator that may show when a stock or index is overbought or oversold during a specific period of time, indicating a potential buying opportunity.

This Markets in a Minute from New York Life Investments looks at the RSI of the S&P 500 Index over the last three decades to show how the market performed after different periods of overbought or oversold conditions

What is the Relative Strength Index?

The RSI measures the scale of price movements of a stock or index. In short, the RSI is used to calculate the average gains of a stock divided by the average losses over a certain time period. These are then tracked across a scale of 0 to 100. Broadly speaking, a stock is considered overbought if it reads 70 or above and it is considered oversold if it is 30 or below.

For example, when the S&P 500 Index has a RSI of 85, an investor may consider it overbought and sell their shares. Conversely, if the RSI hits 25, an investor may buy the S&P 500 thinking the market will bounce back.

The RSI is often used with other indicators to identify market trends.

The Relative Strength Index and S&P 500 Returns

Below, we show the 12-month returns of the S&P 500 Index after key ‘overbought’ or ‘oversold’ conditions in the market as indicated by the RSI:

DateRSIShiller PE Ratio*S&P 500 Index 12-Month Return
Jul 15 200220239.4%
Dec 4 200673274.5%
Oct 13 200815167.3%
Feb 7 201175231.9%
May 13 2013752316.1%
Jan 8 20188933-7.2%
Mar 16 2020222566.3%
May 3 202172370.0%

*Measured by the average inflation-adjusted earnings of the S&P over 10 years

As the above table shows, following each period of extremely oversold territory in the RSI, the S&P 500 Index had positive returns.

In fact, the S&P 500 Index had the strongest one-year returns following the COVID-19 crisis of March 2020, with over 66% 12-month returns. During the time of extreme fear, the RSI sank to deeply oversold territory before sharply rebounding.

Interestingly, following periods of extremely overbought conditions in the market there was a range of positive and negative performance. Most recently, before the peak of the last cycle in 2021, the S&P 500 Index spent roughly 9 months in ‘overbought’ territory before declining into 2022.

The Relative Strength Index in 2022

With the economy in uncertain territory, how does the RSI look today?

In early June, following a bleak consumer sentiment announcement, the RSI fell to 30, hovering on oversold territory. Since then, it has risen closer to 40 as consumer sentiment and perspectives on economic conditions have slightly improved.

However, whether or not the RSI will continue on this uptrend remains to be seen.

For the remainder of 2022, market sentiment, which may be shaped by the coming GDP and inflation figures, could push RSI into oversold territory once again. As a bright spot this may be good news—reinforcing a turning point in the market.

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Markets in a Minute

Visualized: How Bonds Help Reduce Bear Market Risk

How have bonds historically performed during a bear market? How have different stock and bond allocations performed?

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Bear Market Risk

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Visualized: How Bonds Help Reduce Bear Market Risk

Which tactics can investors use to reduce portfolio downside risk?

One time-tested method is allocating to bonds. Bonds have sheltered portfolio losses during bear markets thanks to the lower risk profile of bonds compared to stocks. Often, when stocks declined during market selloffs, safer assets like bonds tended to increase as the demand for stability grew.

This Markets in a Minute from New York Life Investments shows the performance of bonds and stocks during bear markets since World War II.

Bond Performance During Bear Markets

Bear markets are defined as a 20% or more decline in U.S. large cap stocks from peak to trough. Since World War II, bear markets have occurred less frequently than bull markets, with the U.S. stock market spending 29% in a bear market versus 71% in a bull market.

With this in mind, we show how a spectrum of portfolio asset allocations to stocks and bonds have performed over the last several bear markets.

  • Stocks: represented by U.S. large cap stocks
  • Bonds: represented by U.S. intermediate government bonds, which are issued with maturity dates between two and five years
Allocation (Stock / Bond)Average DrawdownAverage Time Until Recovery*
100% / 0%-34%3.3 years
90% / 10%-31%3.2 years
80% / 20%-28%2.9 years
70% / 30%-24%2.8 years
60% / 40%-20%2.5 years
50% / 50%-16%2.1 years
40% / 60%-11%1.2 years
30% / 70%-7%0.8 years
20% / 80%-4%0.8 years
10% / 90%-2%0.5 years
0% / 100%-1%0.2 years

*Length of time until new all-time high

For a 100% stock portfolio, the average drawdown was -34%, with 3.3 years until recovery—the time it took to reach a new all-time high.

Comparatively, a portfolio entirely made up of bonds fell -1% on average during bear markets with a recovery time of just a few months.

Balanced Portfolios in Bear Markets

Looking closer, we show how adding bonds to a portfolio has cushioned portfolio losses over the following market downturns, sometimes by as much as 20 percentage points.

Bear Market100% Stock Portfolio Max Drawdown60/40 Portfolio Max Drawdown
2020-20%-10%
2008-51%-30%
2001-45%-22%
1988-30%-17%
1973-43%-26%
1969-29%-18%
1962-22%-13%
1947-22%-13%

A balanced 60/40 portfolio had a 20% average drawdown, recovering in 2.5 years. During the 2020 COVID-19 crash, for instance, a 60/40 portfolio fell almost 10% and fully recovered in six months. By contrast, a 100% stock portfolio declined nearly 20%.

In all of the above historical downturns, investors with a diversified portfolio have been better positioned in a bear market.

Building Portfolio Strength

Bonds have historically seen less volatility than stocks during tougher financial conditions. Typically, riskier assets like stocks have been more prone to market fluctuations than bonds.

To prepare for a bear market, investors can structure a portfolio that aligns with their risk tolerance. Over the long run, the diversification benefits of bonds have been fundamental to protecting portfolios and lowering risk.

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