Domestic Saving and Tax Structure: Evidence from Turkey

Abstract

The impact of tax policy and tax structure on national saving level is an important question for both macroeconomic stabilization and growth purposes, for especially developing countries. This paper examines the impact of tax structure on domestic saving for Turkey through cointegration and vector error correction models from 1965-2011 annual data. The results indicate that there are unidirectional Granger causalities to domestic saving from variables on tax for short-run coefficients. For the long-run, taxes on income as a share of total tax revenue found to be having negative impact on domestic saving, while the ratio of consumption taxes to total tax revenue found to be having negative impact on domestic saving. While the results are consistent with theoretical literature, they may be expected to contribute to empirical discussion of design the tax policy on developing countries and Turkey where do not have enough empirical finding in the field.