Central-Local Fiscal Relations in Turkey: A Technical Analysis of Fiscal Equalization

Abstract

This article examines central-local fiscal relations in Turkey in terms of fiscal equalization. Whether or not the revenue sharing system actually results in fiscal equalization is examined. Local tax and expenditure disparities are investigated by using a simultaneous equation analysis. The article concludes that a number of economic and demographic variables explain tax and expenditure differences. The empirical finding confirms that the current revenue sharing system does not take these determinants of local tax and expenditures into account in the allocation of benefits, and therefore this system does not result in fiscal equalization. To enhance fiscal equalization, the significant variables could be entered in the revenue sharing formula with their coefficients as weights.