The corporate tax–economic growth nexus: the role of institutional quality

Abstract The impact of corporate income tax rates on economic growth remains a central topic of debate in economics, yet existing research provides limited evidence on how institutional quality shapes this relationship. This study addresses this gap by examining whether strong legal institutions can mitigate the negative growth effects typically associated with higher corporate taxation. Using data from 36 OECD countries spanning 2000 to 2021 and employing System GMM estimation, the analysis offers a novel contribution by highlighting the moderating role of institutional quality in the tax-growth nexus. The results indicate that although higher corporate income tax rates tend to hinder economic growth, this adverse effect is significantly attenuated in countries with stronger legal institutions. The results suggest that institutional quality is an important contextual factor to consider when evaluating the growth effects of corporate taxation.