The relationship between tax burden and economic growth: Turkey case

Abstract

Purpose – In the theoretical framework, the relationship between tax revenues and economic growth, which is the multiplier mechanism, shows that an increase in tax revenues has a negative impact on economic growth. In this study, the relationship between tax burden and economic growth is examined by VAR analysis and Granger causality test. Methodology – In this study, VAR analysis and Granger Causality test analysis methods are used. In the study, the analysis is done for Turkey. Annual data are used in the study. The analysis covers the years from 1970 to 2018. In the study, firstly VAR analysis is done and then Granger Causality test is performed. Findings – The findings obtained in the analysis are as follows. In the VAR analysis the tax burden has a negative effect on the 3rd period growth. As a result of the Granger Causality test, it is concluded that tax burden and economic growth are mutual causes of each other. Conclusion – According to the results obtained, the tax burden affects economic growth negatively. Accordingly, increasing tax rates will not have positive feedback in terms of economic growth, and vice versa, its will have negative effects on economic growth. It would be more positive result, if policy makers reduce their tax rates in practice rather than increasing.