Taxes and private consumption expenditures: a component-based analysis for Turkey

Abstract

ABSTRACTThis paper empirically analyzes the effects of tax shocks on private consumption expenditures in Turkey. For this purpose, private consumption expenditures are firstly decomposed into four major categories and then to which structural VAR (SVAR) model is employed using a data set for the period 2003:Q1–2013:Q3. The empirical findings of the paper show that both in the short and long run, private consumption expenditures are affected by value-added tax (VAT) and personal income tax. However, it is important to highlight that VAT plays a more important role in influencing private consumption expenditures than the other taxes under consideration. Overall, the findings reveal that the effects of tax shocks on private consumption expenditures vary depending on the types of taxes, components of the private expenditures, and length of the period.