This chapter provides background information on macroeconomic conditions until the end of 2025. 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 2026
OECD and Selected Partner Economies
Abstract
In the past, macroeconomic conditions have been an important driver of tax policy reforms. Although the causal links between macroeconomic developments and specific tax measures are not straightforward to identify, several clear patterns can be observed. For example, past crises such as the Great Recession or COVID-19, were in many cases quickly followed by a variety of tax support measures aimed at household and business liquidity. Similarly, when inflation is elevated, countries have been more likely to lower taxes on certain products while at the same time introducing new taxes on sectors that profit from higher price levels. Meanwhile, for revenue-raising reforms, countries frequently cite high public debt levels as well as increased spending needs as motivating factors. Understanding the main macroeconomic developments in 2025, therefore provides important global and country-level context to tax reforms during that period.
The global economy remained resilient in 2025 despite the gradual introduction of new trade barriers and persistently high policy uncertainty. Global gross domestive product (GDP) growth is estimated to have been 3.4%, unchanged from 2024 and around 0.1 percentage points (p.p.) below the average for the 2010s (Figure 1.1). Growth strengthened to an annualised 3.6% in the second half of 2025. In early 2025, front-loading of goods production and trade ahead of the introduction of higher tariffs supported the global economy. Throughout the year, supportive financial and fiscal conditions lifted private consumption while strong demand for artificial intelligence technologies boosted investment across many economies.
Among the advanced economies, economic growth increased in 2025 in several European countries, including Austria, the Czech Republic (Czechia), Germany, Latvia, the Netherlands, Sweden and the euro area. Japan experienced a marked rebound, with growth in 2025 about 1.2 p.p. higher than in 2024. In the United States, growth eased from the rapid pace in 2024, but was stronger than initially expected, as the negative impact of higher tariffs and policy uncertainty was largely offset by robust technology‑related business investment. The US federal government shutdown weighed on growth in the fourth quarter.
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. Dotted bars are for OECD non-member countries and green bars for aggregates.
Source: OECD Economic Outlook 119 database; and OECD calculations.
The picture across emerging-market economies was more mixed, though resilience was also evident. In China, gross domestic product grew by 5% in 2025, a growth primarily driven by resilient domestic demand, expanding new growth drivers, and strong exports. Growth in India and Argentina, the latter emerging from recession, was particularly strong in 2025. In contrast, growth in Mexico and South Africa was relatively weak amid high external and domestic policy uncertainty.
Global trade volumes rose by 5% in 2025, despite the sharp increase in US import tariffs, which raised the estimated US effective tariff rate from 2.3% in January 2025 to 14% in December with a peak of 17.7% in April. In part this reflected a front-loading of exports to the United States ahead of tariff increases, which pushed annualised quarterly global trade growth to 9.2% in the first quarter. But trade growth remained relatively resilient during the second half of 2025, buoyed by strong technology-related exports from the Asian economies, reflecting the global acceleration in technology investment.
While inflation continued to decrease in 2025, it did so at a slower pace than in previous years (Figure 1.2). Inflation generally eased but remained above central bank targets in a few major economies, including Brazil, Türkiye, the United Kingdom and the United States. Inflation stabilised around target for Canada, the euro area and Korea. A common pattern across countries was moderating goods inflation paired with persistently high services inflation. In 2025, consumer prices in China remained generally stable and positive. The year-on-year growth of the Consumer Price Index (CPI) turned positive and kept rising starting in October, with its growth widening to 0.8% in December.
Year-on-year, in percent
Note: Core is a measure of inflation excluding food and energy products.
Source: OECD Economic Outlook 119 database; and OECD calculations.
Labour market conditions eased moderately during 2025. Job vacancy rates continued to decline in several advanced economies, including Canada, the United Kingdom and the United States, indicating softer labour demand. The median OECD unemployment rate increased by 0.3 p.p. year-on-year in the fourth quarter of 2025. The increase was relatively pronounced in Finland, Iceland and the United Kingdom, while unemployment declined in some other OECD countries, including Colombia, Estonia, Greece, Italy and Spain. Despite recent increases, unemployment rates in most OECD countries remained low compared to 2019 (Figure 1.3), except notably in Finland, Estonia, Sweden and the United Kingdom. Nominal wage growth remained relatively solid, though unit labour cost growth eased across many OECD economies, due to improving labour productivity growth.
As a percentage of the labour force
Source: OECD Economic Outlook 117 database; and OECD calculations.
In 2025, policy interest rates continued to fall in the euro area (only early in the year) and the United States (in the second part of the year), while rising in Japan. By year-end, rates remained elevated at or near restrictive levels in the United States, the United Kingdom, Brazil, Mexico, South Africa and Türkiye, and close to neutral levels in Canada, the euro area and Korea. They were at moderate levels in many other emerging-market economies, including India and Indonesia. Financial conditions were accommodative throughout 2025 in both advanced and emerging-market economies, supported by strong equity price growth and low bond spreads.
Public debt as a percentage of GDP in 2025 remained higher than pre-pandemic levels in most countries (Figure 1.4). For the OECD as a whole, government debt was around 7 p.p. higher than in 2019, reaching around 111% of GDP in 2025. The level and the increase of the debt were particularly notable in France, the United Kingdom and the United States. However, significant declines occurred in Greece, Ireland and Portugal over the same period. Japan’s public debt ratio fell in 2025 relative to 2024, with a substantial reduction of nearly 8 p.p. in 2025 helped by stronger nominal GDP growth as well as a much smaller budget deficit. Several other countries – including Denmark, Greece, Ireland, Korea, and Portugal saw significant reductions in the public debt ratio relative to 2024.
Rising debt combined with higher interest rates has increased debt service costs in many OECD countries since 2021. Public debt servicing costs rose by more than 1 p.p. of GDP between 2021 and 2025 in Australia, Finland, Hungary, Mexico, Norway, Poland and the United States. The median OECD headline fiscal deficit as a share of GDP widened by 0.4 p.p. in 2025, partly due to smaller fiscal surpluses in Denmark, Greece, Ireland and Norway. After adjusting for the economic cycle, and removing net debt interest payments, there was some modest fiscal consolidation for the OECD as a whole in 2025 (by 0.2 p.p. of GDP compared to 2024) with tightening in all G7 economies, particularly France.
As a percentage of GDP
Note: Maastricht definition for EU countries. 2025 is a projection for all countries except Canada, Estonia, Italy, Norway, the Netherlands and the United States.
Source: OECD Economic Outlook 119 database.