This chapter provides background information on macroeconomic conditions until the end of 2024. Tax revenues and reforms are closely linked to macroeconomic conditions, including variations in economic growth, inflation, productivity, investment, the labour market, and public debt. This chapter gives a brief overview of recent trends in these areas to put the tax policy reforms discussed in chapter 3 in context.
Tax Policy Reforms 2025
OECD and Selected Partner Economies
Abstract
Global GDP is estimated to have grown by 3.3% in 2024, around 0.2 percentage points below the 2010s average (Figure 1.1), strengthening to 3.7% in the last quarter (seasonally adjusted, annualised rate) (OECD, 2025[1]). Robust real income gains and lower interest rates generally supported household spending growth. However, this was offset in some regions by weaker government spending, partly related to the withdrawal of fiscal support measures that were introduced in response to the energy crisis, and by sluggish consumer confidence – despite strong household income growth – weighed down by the continuing impact of past high food and energy inflation (Ollivaud and Westmore, 2024[2])
Among advanced economies, GDP growth remained robust in the United States, Denmark, Greece, and Spain. In contrast, growth was weaker elsewhere, with real GDP per capita estimated to have declined in nearly one-third of OECD countries in 2024. Some countries, notably in Europe, saw a significant slowdown of GDP growth in 2024 compared to the average over 2010-19. These included Austria, Estonia, Hungary, Iceland, Israel, Latvia and New Zealand. In Japan, annual growth was also sluggish, though there were signs of an upturn towards the end of the year. The second half of the year was also relatively buoyant for Canada, Chile, Denmark, Israel and the Netherlands.
In percent
Note: Aggregates are calculated using weights in purchasing power parities except the euro area (EA17), for which countries are weighted by GDP in euros. Growth in India is based on fiscal years starting in April. Growth in Ireland was computed using gross value added at constant prices excluding foreign-owned multinational enterprise dominated sectors. The data in this figure are based on the OECD Economic Outlook and therefore do not cover all of the jurisdictions included in this Tax Policy Reforms report.
Source: OECD Economic Outlook 117 database; and OECD calculations.
Emerging-market economies exhibited diverse growth patterns. India, Indonesia and China recorded the strongest GDP growth rates among reported countries in 2024 (Figure 1.1). The pace of growth in Colombia and the Republic of Türkiye was weaker than the average during the previous decade, while growth in Brazil was stronger. Meanwhile, the fourth quarter of 2024 was particularly strong in many countries. While rapid growth in Brazil slowed, the pace of economic activity remained robust in India, South Africa and Türkiye, and the recession in Argentina continued to abate. GDP growth in China remained solid in the second half of 2024, with private consumption supported by government incentives and rapid export growth.
Global trade growth rebounded in 2024 but eased slightly in the final quarter of the year. Trade patterns during 2024, particularly between Asia and North America, were affected by the need to manage risks related to shipping availability at peak times and by longer journey times due to the effective closure of the Red Sea route and lower water levels in the Panama Canal. Services trade remained relatively buoyant through 2024, helped by a continued recovery in international travel and tourism.
Headline and core inflation in the OECD and major emerging-market economies peaked in the second part of 2022 and have declined since (Figure 1.2). Amongst emerging-market economies, inflation rates in Argentina and Türkiye increased to high levels during 2024 but began to fall later in the year. The evolution of inflation rates through 2024 was generally characterised by decreasing goods inflation, while services inflation proved more resilient. However, median of goods inflation rate across OECD countries started to rise in the last few months of 2024 (from -0.3% in September to 1.5% in December, year-on-year) while services inflation remained elevated, raising concerns about the extent to which inflation would further moderate.
Year-on-year, in percent
Note: Core is a measure of inflation excluding food and energy products. The data in this figure are based on the OECD Economic Outlook and therefore do not cover all of the jurisdictions included in this Tax Policy Reforms report.
Source: OECD Economic Outlook 117 database; and OECD calculations.
Labour market conditions remained generally favourable, although employment growth slowed somewhat in the second half of 2024. Unemployment remained low in most countries, with the OECD-wide unemployment rate at 4.9% at the end of 2024, below the pre-pandemic level of 5.3% (Figure 1.3). The largest decreases from pre-pandemic levels were for Costa Rica, Greece, Italy, Spain and Türkiye. In contrast, some increases in unemployment rates were recorded for Canada, Denmark, Estonia, Finland, Hungary and Sweden. Nominal wage growth continued to ease through the second half of 2024 alongside lower price inflation, but remained elevated, with wage pressures lingering in some regions. In most advanced economies, strong wage growth, accompanied by relatively modest productivity gains, kept unit labour cost growth above levels consistent with central bank inflation targets.
Policy interest rates began to decline in most major economies during 2024. Notable exceptions included Japan and Brazil, where policy interest rates were increased. The monetary policy stance at the end of the year remained restrictive in most countries, with forward-looking real interest rates above pre-pandemic norms and policy interest rates generally above estimates of long-term equilibrium levels. Borrowing costs eased through the year for many firms and households in OECD economies, but the effect of past increases in policy rates continued to be felt as rates on existing loans were renegotiated and new higher-yielding debt was issued. Overall, indicators suggested that financial conditions eased materially in 2024 in both advanced and emerging-market economies.
Housing investment is estimated to have fallen by about 4% in the median OECD economy in 2024, partly in response to relatively high interest rates. In China, the correction in the real estate market continued, with housing investment declining. However, some signs of a pick-up in housing market activity materialised in some countries, with the number of transactions beginning to recover in France, Korea, Spain and the United Kingdom. In addition, real business investment remained generally weak amid tight financing conditions and sluggish demand in some economies. Nearly half of OECD countries with available data reported a contraction in business investment in 2024, including Canada, France and Germany.
As a percentage of the labour force
Note: 2024Q3 for Iceland. The data in this figure are based on the OECD Economic Outlook and therefore do not cover all of the jurisdictions included in this Tax Policy Reforms report.
Source: OECD Economic Outlook 117 database; and OECD calculations.
As a percentage of GDP, public debt in 2024 was higher than before the pandemic for most countries (Figure 1.4). For the OECD as a whole, government debt rose by around 8 percentage points, reaching nearly 112% of GDP in 2024. Debt service costs have risen substantially since 2021 partly reflecting higher interest rates now compared to when maturing debt was issued. Headline fiscal deficits as a share of GDP increased in 2024 for about half of OECD countries. There were a few exceptions, with the deficit shrinking in Czechia, Estonia, Hungary and Italy. After adjusting for the economic cycle, and removing net debt interest payments, there was little fiscal consolidation in most OECD economies in 2024.
As a percentage of GDP, 2024
Note: Maastricht definition for EU countries. The data in this figure are based on the OECD Economic Outlook and therefore do not cover all of the jurisdictions included in this Tax Policy Reforms report.
Source: OECD Economic Outlook 117 database
Macroeconomic conditions have played a key role in shaping recent tax policy reforms. While the causal relationship between macroeconomic dynamics and specific tax policy decisions remains underexplored, several patterns have emerged. Rising public debt levels have emerged as a motivation for revenue-raising reforms, particularly in light of mounting fiscal pressures (Romer and Romer, 2010[3]). High inflation has also influenced tax policy, putting pressure on household budgets – especially where wages have been slow to adjust – prompting governments to provide relief through both targeted and broad-based measures.
References
[1] OECD (2025), OECD Economic Outlook, Interim Report March 2025: Steering through Uncertainty, OECD Publishing, Paris, https://doi.org/10.1787/89af4857-en.
[2] Ollivaud, P. and B. Westmore (2024), “The key role of food and energy inflation in shaping consumer confidence”, OECD Ecoscope blog, https://oecdecoscope.blog/2024/12/13/the-key-role-of-food-and-energy-inflation-in-shaping-consumer-confidence/.
[3] Romer, C. and D. Romer (2010), “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks”, American Economic Review, Vol. 100/3, https://doi.org/10.1257/aer.100.3.763.