Impact of Indirect Taxes on Income Distribution

Abstract

When the macroeconomic objectives of the countries are analysed, these aims include economic growth and development, economic stability, balance of payments, fair income distribution and resource allocative efficiency. Among these objectives, while developing countries generally give priority to economic growth at a certain rate, the priority of developing countries is to reach a certain level of development. Although economic growth and development are the most important priority, achieving this aim alone does not mean that it is economically successful. In addition to growth, giving a common share from the growing economy to the whole society increases economic prosperity, contributes to social development, positively affects social peace and causes acceleration of economic growth. However, if the market is left to itself, it is possible that the income generated as a result of economic growth will be un equally shared among the society. For this reason, the idea that the government intervenes in the market and allocates the income as it should be being a highly defended subject in the literature.There is no doubt that the state needs certain instruments when allocating income among economic actors in the market. These instruments consist of public expenditures, taxes and debt. When the situation is examined in terms of taxes, it can be said that direct taxes such as income tax and corporate tax are more effective in the redistribution of income-wealth. On the other hand, indirect taxes such as value added tax and special consumption tax are estimated to negatively affect income distribution due to the contrary progressivity. In this study, the effect of indirect taxes on income distribution has been examined in Turkish economy. As a result of the study, it was determined empirically that indirect taxes negatively affect the income distribution in the analysed period of 1990-2017. This shows that implementation results are in line with theoretical expectations. This shows that, application results and theoretical expectations are adaptive.