Tax Optimality in Turkey: An Analysis for Total Tax Revenues

Abstract

Within the scope of optimal tax theory, the optimality problem of fiscal policies in the Turkish tax system for the period 1980-2019 will be discussed from the perspective of the Laffer curve. The study, it is aimed to obtain the real Laffer curve showing the relationship between total tax revenues and tax rate for Turkey. Macroeconomic variables such as tax rates, tax revenues, crisis periods, unemployment rates, and real wages are included in the analysis with the help of an econometric package program. Within the scope of time series, the effect of the tax rate on tax revenues was investigated using Johansen and ARDL cointegration approaches. According to the findings obtained from the analyses, the total tax rates in Turkey are on the right of the Laffer curve, in other words, the Laffer curve exceeds the optimal point. Based on the hypothetical existence of Laffer theorem’s in Turkey, the optimal tax rates were calculated for the total tax revenues, and the current tax rates of each year were compared with the optimal tax rates. It has been determined that the total tax rates in the specified period are in the forbidden region of the Laffer curve. This situation, which states that the tax burden has increased, reveals that the taxation process should be revised. There is no comprehensive empirical analysis of Turkey. The findings will guide the applications that will contribute to the field. The originality of the work; is based on the inclusion of time series analysis of macroeconomic data such as crisis periods, unemployment rates, real wages as independent variables in determining the relationship between tax revenues and tax rates. The validity of the Laffer curve for each tax (Income Tax, Corporation Tax, VAT) in the Turkish tax system can be examined with the data and methods used in the research.