OCDE - Foundations for Growth and Competitiveness 2026

Foundations for Growth and Competitiveness 2026 Foundations for Growth and Competitiveness 2026Foundations for Growth and Competitiveness 2026This work was approved and declassified by the Economic Policy Committee on 13/11/2025. This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Note by the Republic of Türkiye The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”. Note by all the European Union Member States of the OECD and the European Union The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

Please cite this publication as: OECD (2026), Foundations for Growth and Competitiveness 2026, OECD Publishing, Paris, https://doi.org/10.1787/40a7532f-en.

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Attribution 4.0 International (CC BY 4.0) This work is made available under the Creative Commons Attribution 4.0 International licence. By using this work, you accept to be bound by the terms of this licence (https://creativecommons.org/licenses/by/4.0/). Attribution – you must cite the work. Translations – you must cite the original work, identify changes to the original and add the following text: In the event of any discrepancy between the original work and the translation, only the text of the original work should be considered valid. Adaptations – you must cite the original work and add the following text: This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries. Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement. You must not use the OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work. Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one. 3

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Acknowledgements This publication was prepared by the Economics Department’s Foundations for Growth and Competitiveness unit: Nicolas Ruiz, Joana Duran-Franch, Alvaro Leandro, Sebastien Turban, Agnès Cavaciuti and Marnix Dek, under the supervision of Dan Andrews, and the general supervision of Asa Johansson and Filiz Unsal. The Foundations for Growth and Competitiveness exercise relies heavily on contributions from the Country

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digital services trade, for example, by establishing best practice regulations on interconnections among network operators or removing impediments to online payments, can support digital adoption and firm productivity. Austria, Hungary, Iceland, Italy, Türkiye, the United States, India and Indonesia could all benefit from easing restrictiveness to services trade. However, restrictions on cross-border services trade, including digital services, are rising. Restrictions on services trade have historically been higher than tariffs on goods (Benz and Jaax, 2022[203]) and grew over 2024 in all service sectors as the global efforts to ease regulatory hurdles faded (OECD, 2025[204]). Similarly, the restrictiveness of the global regulatory environment in digitally enabled services has increased worldwide in more than 100 countries (OECD, 2025[204]). Finally, further liberalising FDI would benefit several countries. Lowering regulatory restrictiveness has been shown to increase FDI inflows (Mistura and Roulet, 2019[205]), expanding the scale and diversity of capital available for productive investment in recipient countries and improving allocative efficiency (Andrews and Cingano, 2014[100]). Streamlining screening and approval procedures would support FDI in New Zealand, Korea and Iceland, while easing FDI restrictions would be beneficial in India and Indonesia. Reducing barriers to the appointment of foreign key personnel in Israel, and in network sectors in Canada,72 

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could enhance competition and productivity, provided national security concerns are appropriately managed. Similar gains could be achieved by easing FDI restrictions in services sectors in Finland, Japan and Mexico. Implementing growth-friendly housing policies Access to affordable housing has become an increasingly prominent issue in OECD countries, with supply constraints driving up costs and limiting access. Housing-related expenditures account for over one-fifth of household spending on average, according to the OECD Housing Affordability Database. A negative correlation between increases in housing prices and changes in the housing supply since 2011 suggests that affordability pressures are most acute in areas where housing construction has lagged, consistent with

household spending on average, according to the OECD Housing Affordability Database. A negative correlation between increases in housing prices and changes in the housing supply since 2011 suggests that affordability pressures are most acute in areas where housing construction has lagged, consistent with the presence of supply constraints (Figure 34) – a phenomenon also observed across US states (Glaeser and Gyourko, 2025[206]). Figure 34. Supply constraints have contributed to the decline in housing affordability Annualised change

Note: 2021 or latest year available. The annualised growth is calculated based on the latest available year.

Source: Housing Affordability database, OECD calculations.

StatLink 2 https://stat.link/7cyip5 A housing supply that can respond flexibly to shifts in demand enables workers to move to areas with better job opportunities and strengthens agglomeration economies – the productivity gains from firms and people locating near one another (Glaeser, 2010[207]). In contrast, housing supply constraints exacerbate affordability issues and carry large economic costs (Caldera Sánchez and Andrews, 2011[208]; Causa and Pichelmann, 2020[209]; Schleicher, 2017[210]). A key concern is that when regulations restrict the responsiveness of housing supply, they distort incentives and hinder geographic mobility, preventing workers from accessing jobs that best match their skills (Causa and Pichelmann, 2020[209]; Oswald, 2009[211]). The economic consequences can be substantial (Gyourko and Molloy, 2015[212]; Kane and Lopez, 2023[213]), with evidence from major US cities suggesting that labour misallocation due to restrictive housing policies reduced aggregate US growth by roughly one-third between 1964 and 2009 (Hsieh and Moretti, 2019[214]). Recommendations within F4GC focus on expanding the supply of affordable housing, improving access through smarter regulations and increasing the funding for social housing (Figure 35). 73

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Moretti, 2019[214]). Recommendations within F4GC focus on expanding the supply of affordable housing, improving access through smarter regulations and increasing the funding for social housing (Figure 35). 73

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Figure 35. Policy recommendations to reform housing policies Share of policy recommendations to reform housing policies (%)

Note: Each bar displays the ISO3 country codes corresponding to the countries with a recommendation in that area.

Source: OECD calculations based on Foundations for Growth and Competitiveness (F4GC) Country Notes.

StatLink 2 https://stat.link/r3pjzk More streamlined and flexible land-use and spatial planning policies could reduce housing supply constraints and support growth in countries such as Australia, Canada, Luxembourg, the Netherlands, Portugal, Slovenia and the United States. For example, in Australia, restrictive zoning and planning regulations, combined with rising construction costs, have constrained housing supply against a backdrop of rapid population growth. In this context, the federal government would benefit from incentivising local authorities to streamline zoning regulations. In the United States, housing development has also been limited by excessive zoning regulations, which could be reformed to allow for higher-density development in urban areas, particularly near transit corridors. Improving the co-ordination and reducing overlapping responsibilities between levels of government, as well as addressing excessive decentralisation could also reduce the rigidity of housing supply (Cavalleri, Cournède and Özsöğüt, 2019[215]; Bétin and Ziemann, 2019[216]; Andrews, Caldera Sánchez and Johansson, 2011[217]). To this end, Portugal would benefit from harmonising regulation across municipalities. The example of Israel’s Housing Headquarters committee that oversees all relevant housing authorities and facilitates horizontal co-operation among them could be helpful (OECD, 2017[218]). In addition, increasing the availability of social housing can increase the supply of affordable housing,

municipalities. The example of Israel’s Housing Headquarters committee that oversees all relevant housing authorities and facilitates horizontal co-operation among them could be helpful (OECD, 2017[218]). In addition, increasing the availability of social housing can increase the supply of affordable housing, especially among lower income households (Favilukis, Mabille and Van Nieuwerburgh, 2022[219]). Social housing can yield benefits with limited distortions on mobility and private development when paired with measures that support residential mobility and ease broader supply constraints. For example, eligibility rules – such as the 2015 United Kingdom’s Right to Move, which removed local residency requirements for social housing applicants moving for employment or apprenticeships – can facilitate mobility (OECD, 2021[220]; OECD, 2020[221]). Additionally, a larger social housing stock can further reduce mobility costs for eligible households relocating to seize economic opportunities (OECD, 2020[221]; Causa and Pichelmann, 2020[209]; OECD, 2020[222]). Building more social housing is a priority for several OECD countries, including Australia, Canada, Israel, Portugal and Sweden. In Sweden, a social housing system could, if implemented, support the transition away from rent controls discussed below by providing affordable housing for low-income households. Such a system could also contribute to reducing socio-economic spatial segregation, which is more pronounced74 

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in Sweden than in other Nordic countries (Tunström and Wang, 2019[223]). In Australia, Canada and Portugal, a relatively small stock of social housing compared to other countries with available data (OECD, 2020[224]) calls for greater investment to expand the supply of affordable units. In Israel, increasing the housing supply via social housing development in economically dynamic areas would also address the rapid increase in house prices, which have recently hampered the labour market participation for new entrants. Easing overly stringent rental regulations could also help alleviate housing constraints and support labour

below exploit data on rental market regulations developed by Kholodilin (2020[231]) which provides information on three types of policies (rent control, tenant protection, and housing rationing) for 150 countries since 1910. Several binary variables are averaged for each of the three types and then aggregated into a Rental Market Regulation Index (RMRI). The impact on labour productivity, capital deepening and the employment rate is estimated by local projection methods (See Annex 1.B). The results suggest that a decrease in rental market regulation, for a shock calibrated as the average change observed over the sample, has a significantly positive impact on employment and a small positive impact on labour productivity (Figure 36). Thus, by easing rental market regulations, countries with tight rental market regulations could raise growth (Figure 37): employment rates could increase by up to 2 points at horizon 2 years, and 4 points at horizon 5 years, if countries with the tightest regulations were to set them at the OECD median. However, this would imply sizeable changes: in 2024, the OECD median was 0.33 against 0.66 in France and the Netherlands, while the average historical yearly shock was around 0.09 over the estimation window. 75

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Figure 36. The impact of loosening rental market regulations on growth Impact of average historical reduction in aggregate Rental Market Regulation Index, average shock of 0.09 units

Note: Aggregate Rental Market Regulation Index ranges from 0-1. Labour productivity is measured as GDP per worker. Capital deepening is measured as the contribution of capital per worker to growth in GDP per capita. The employment rate refers to people aged 15-64. The shock corresponds to a yearly change in the Rental Market Regulation Index (RMRI) from (Kholodilin, 2020[232]). The estimation is run on the period 1995-2019 for OECD countries. The

darker-shaded area represents the 68% confidence interval, while the light-shaded area corresponds to the 90% confidence interval. Refer to Annex 1.B for the methodology used in the estimation.

Source: OECD calculations based on Kholodilin, K. (2025), Longitudinal database of rental housing market regulations: 100+ countries over 100+ years,

https://rpubs.com/Konstantin_Xo/RHMR. StatLink 2 https://stat.link/k8ob3e Figure 37. Easing of rental market regulations could boost labour utilisation Potential impact (in % points) on the employment rate of reducing the Rental Market Regulation Index to the OECD median

Note: Simulated effects at the twoand five-year horizons are based on a scenario in which countries above the OECD median in rental market regulations in 2023 converge to the OECD median. For illustration, in the case of France, this represents a cut in the RMRI of 0.34 units that would correspond to a regulatory setting similar to that in Korea. The 68% confidence interval is reported for each simulated effect following conventions in the local projection methods literature.

Source: OECD calculations.

Source: Mitteldorf, E., Smiderle, I., Duran-Franch, J., Leandro, A., Turban, S. and Ruiz, N., “The short-term effects of structural reforms: a reassessment”,

OECD Economics Department Working Papers, forthcoming. StatLink 2 https://stat.link/4t8cuk76 

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Easing rental market regulations is a priority in Sweden and Slovenia. Evidence from the OECD suggests that such easing would support inclusive growth by supporting housing supply. For example, in Finland, the liberalisation of the rental market expanded supply –the private rental stock grew from 12% in 1990 to 17% in 2012– while preserving affordability with the simultaneous implementation of complementary measures to improve the responsiveness of housing supply (de Boer and Bitetti, 2014[233]). Sweden, which

2020[209]; O’Sullivan, Sexton and Sheffrin, 1995[237]), whereas recurrent property taxes have a small adverse impact on mobility and growth relative to the other major sources of revenues (Arnold et al., 2011[238]; Akgun, Cournède and Fournier, 2017[155]). Among the countries that could benefit from a gradual shift from transaction-based taxes to recurrent taxation is Portugal. In addition, regular updates of property values – such as through computer-assisted mass appraisal tools, which are still absent in many OECD countries (OECD, 2022[236]) – would provide further benefits to the country. Capping the capital gains tax exemption or phasing out mortgage interest relief can also support growth. They can increase housing supply and support labour mobility by reducing incentives that lock households into oversized owner-occupied homes. This makes it easier for households to move for work or other needs, and can reduce upward pressure on house prices, particularly where supply is constrained. Most OECD countries exempt owner-occupied housing from capital gains taxation, supporting homeownership and savings in an indirect, inefficient and regressive way. Likewise, tax relief for mortgage interest on owner-occupied housing is common in the OECD but tends to be capitalised into prices given low housing supply elasticity. It is also regressive and encourages indebtedness and overconsumption of housing services (e.g. via larger houses). In Australia, the capital gains tax concessions on main residences are particularly high and could be reduced, which would also limit the risks to financial stability. Reducing generous mortgage interest deductibility would also improve the efficiency of the tax system in the Netherlands and in Sweden in a progressive way. 77

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4. Guiding and supporting activities through targeted and sectoral policies Targeted policies serve to guide and support economic activity and correct for market failures, including the internalisation of externalities, which involves compensating those firms who generate positive externalities and taxing those who cause negative ones. For example, firms tend to innovate less than

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Executive Summary Revisiting the foundations for growth is now central given the decline in medium term economic prospects that have beset OECD countries, underpinned by a marked slowdown in labour productivity growth. The latter reflects persistently weak business investment in the aftermath of the global financial crisis as well as longer term slowdown in business dynamism and human capital accumulation. While stronger employment outcomes over the last 15 years have provided some offset, this growth could fade due to population ageing and persistent labour and skill shortages. In this context, there is an urgent need for countries to implement productivity-enhancing structural reforms, noting that reform momentum has been in retreat across the OECD for more than a decade. Doing so can help countries to revitalise their economies by confronting the above headwinds to growth and more fully capitalising on the opportunities offered by new technologies, such as Artificial Intelligence. The Foundations for Growth and Competitiveness (F4GC) initiative aims to provide policymakers with tools to tackle these challenges. This 2026 edition identifies structural reform priorities that can be organised into three key policy areas (see below): enabling factors, including human capital, governance, infrastructure and macroeconomic policy; market incentives and allocative efficiency, spanning taxation, product and labour market regulation, trade and FDI; and targeted and sectoral measures including innovation and energy security support. 13

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The Foundations for Growth and Competitiveness Framework

Reform priorities are identified through a newly developed policy prioritisation model, built upon a new database aggregating most of the OECD statistical production on structural policy settings. Each of the

innovation. Targeted policy recommendations identified in F4GC are prevalent, representing 10% of the total recommendations. Three in four recommended targeted policies focus on innovation support, and one in four on energy and the environment (Figure 38). Figure 38. Targeted policies are warranted in various areas Share of recommendations in targeted policies by area (%)

Note: Each bar displays the ISO3 country codes corresponding to the countries with a recommendation in that area.

Source: OECD calculations based on Foundations for Growth and Competitiveness (F4GC) Country Notes.

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Accelerating innovation Technological progress and innovation are the primary catalysts of long-term economic growth (Swan, 1956[240]; Solow, 1956[241]; Romer, 1990[242]). As economies move closer to the technological frontier, productivity growth becomes increasingly dependent on the development of new ideas, technologies and methods in production and service delivery. However, due to the unique nature of knowledge – being nonrival and only partially excludable – private sector investment in innovation may fall short of societal optimal levels, justifying government intervention to correct imperfections in the market for ideas (Andrews and Criscuolo, 2013[243]). Accordingly, innovation policies captured in the F4GC framework are based on quantitative indicators that capture various ways in which governments subsidise the innovation process (see Annex 1.C). The preferential tax treatment of R&D – in the form of R&D tax credits and deductions – can generate additionality: that is, it can encourage firms to undertake more R&D than they otherwise would have absent the policy intervention. A range of factors determine the effectiveness of R&D tax incentives. First, additionality tends to be larger for policy measures targeted at smaller firms: OECD research shows that one extra unit of R&D tax support translates into 1.4 extra units of R&D, but with a larger effect for small

resulting in larger knowledge spillovers than applied research, and tends to make applied R&D more productive (Akcigit, Hanley and Serrano-Velarde, 2020[247]), but its sizeable benefits come with long lags (Clancy, 2021[248]). However, new research conducted for this edition of F4GC suggests that productivity gains from increased basic research spending materialise within four years (Box 11). Specifically, raising basic research expenditure by the average historical change over the 1995-2019 period could boost labour productivity by, on average, 0.3% within four years. Basic research is underfunded but additional direct government expenditure and indirect incentives for basic research could boost productivity and pay for itself over a decade (Barrett et al., 2021[249]). More generally, public expenditure directed towards R&D can crowd in private investment and innovation and boost productivity and living standards in the long run (Antolin-Diaz and Surico, forthcoming[250]; Moretti, Steinwender and Van Reenen, 2025[251]). 79

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Box 11. Basic research can boost labour productivity in the short term This box assesses the short-term impact of basic research expenditure on labour productivity, using data from the F4GC database on basic research expenditure as a share of GDP and economic performance indicators across OECD countries. Estimation is conducted by local projection methods (see Annex 1.B). The results suggest that increasing by 0.02 percentage points the fraction of GDP devoted to basic research can lead to a 0.3% gain in labour productivity, starting four years after the expenditure rises (Figure 39). The labour productivity gains tend to materialise more slowly than those of other structural reforms. This reflects the inherently high uncertainty surrounding basic research, as well as its often indirect and unpredictable outcomes. While these outcomes may not yield immediate benefits, they frequently serve as the foundation for future innovations and advances in fundamental knowledge. In addition, greater

reforms. This reflects the inherently high uncertainty surrounding basic research, as well as its often indirect and unpredictable outcomes. While these outcomes may not yield immediate benefits, they frequently serve as the foundation for future innovations and advances in fundamental knowledge. In addition, greater investment in basic research can foster conditions that enable non-frontier firms to adopt technologies and know-how developed by frontier firms through applied research. This may help mitigate the decline in knowledge diffusion between frontier and laggard firms, which has been identified as a key factor behind the weakening of business dynamism in recent years (Akcigit and Ates, 2021[252]). Figure 39. The impact of an increase in basic research expenditure on labour productivity Impact (in %) of average historical increase in the ratio of basic research expenditure to GDP on labour productivity, average shock of 0.02 % points

Note: Labour productivity is measured as GDP per worker. The estimation is run on the period 1995-2019 for OECD countries. The darkershaded area represents the 68% confidence interval, while the light-shaded area corresponds to the 90% confidence interval. Refer to Annex 1.B for the methodology used in the estimation.

Source: OECD calculations.

StatLink 2 https://stat.link/4hqyfg Some countries could see significant labour productivity boosts from increasing basic research spending Closing the gap in basic research expenditure with the OECD median could yield labour productivity gains across countries over a five-year horizon, ranging from 0.01% in Slovenia, where basic research spending is close to the OECD median, to 1.3% in Lithuania, where spending is further below the OECD median (Figure 40). In this context, using part of the increase in defence budgets toward defence-related basic research could help support the necessary investment. Indeed, defence agencies such as DARPA often80 

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support high-risk, high-reward projects rooted in fundamental science, with spillovers that extend well beyond military applications, such as the early internet protocols (ARPANET).

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support high-risk, high-reward projects rooted in fundamental science, with spillovers that extend well beyond military applications, such as the early internet protocols (ARPANET). Figure 40. Raising basic research expenditure to the OECD median could boost labour productivity Potential impact (in %) on labour productivity of increasing basic research expenditure to the OECD median

Note: Simulated effects at the twoand five-year horizons are based on a scenario in which countries below the OECD median in basic research expenditure in 2019 converge to the OECD median. For illustration, in the case of Spain, this represents an increase in basic research spending over GDP of 0.13 pp. The 68% confidence interval is reported for each simulated effect following conventions in the local projection methods literature.

Source: OECD calculations.

Source: Mitteldorf, E., Smiderle, I., Duran-Franch, J., Leandro, A., Turban, S. and Ruiz, N., “The short-term effects of structural reforms: a reassessment”, OECD Economics Department Working Papers, forthcoming.

StatLink 2 https://stat.link/mlsy35

For these reasons, tax measures should be complemented with additional support policies to further R&D efforts. Governments can directly fund private R&D by providing grants, loans, or loan guarantees. In fact, improvements in the design of schemes that provide direct government support to R&D may explain why, in contrast with earlier empirical research, there is clearer evidence of a positive association with innovation (Westmore, 2013[245]). For example, the structure of public support has become more focused on subsidies for commercial R&D activities, and matching grants (for private investments) have become more common (Andrews and Criscuolo, 2013[243]). Recent OECD analysis also highlights a similar degree of additionality for direct funding co