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The Role of Taxes as an Automatic Stabilizer: Evidence from Turkey

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  • Hüseyin SEN

    ()
    (Yildirim Beyazit University, Faculty of Political Sciences, Department of Public Finance, Ankara, Turkey)

  • Ayse KAYA

    ()
    (Izmir Kâtip Çelebi University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Izmir, Turkey)

Abstract

The purpose of this study was to empirically investigate the interactions between various taxes and GDP, and to detect whether taxes function as an automatic stabilizer in Turkey. Firstly, when using a time series unit-root test as proposed by Dickey-Fuller (1979), econometric findings revealed that taxes and level of GDP are not static. Secondly, upon employing cointegration designed by Johansen (1988), it was found that GDP and taxes are cointegrated. Thirdly, the Granger (1969) causality test showed that a uni-directional causality exists among taxes, and the causal relationship is between GDP to SCT, and from VAT and CIT to GDP. On the other hand, there was a bi-directional causality between GDP and PIT. Empirical findings showed that personal income tax is the most effective tax in stabilizing business cycle fluctuations. Corporate income tax is also important.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 43 (2013)
Issue (Month): 3 (December)
Pages: 303-313

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Handle: RePEc:eap:articl:v:43:y:2013:i:3:p:303-313

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Related research

Keywords: Automatic Stabilizers; Fiscal Policy; Unit-Root Test; Co-Integration Analysis; Engle-Granger Causality Test; Personal Income Tax; Corporate Income Tax; Turkey;

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  1. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, sunspots, and automatic stabilizers," Staff Report, Federal Reserve Bank of Minneapolis 214, Federal Reserve Bank of Minneapolis.
  2. Andrea Colciago & Tiziano Ropele & V. Anton Muscatelli & Patrizio Tirelli, 2008. "The Role of Fiscal Policy in a Monetary Union: are National Automatic Stabilizers Effective?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 591-610, 08.
  3. Christina D. Romer, 1999. "Changes in Business Cycles: Evidence and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 23-44, Spring.
  4. Maria Antoinette Silgoner & Jesús Crespo-Cuaresma & Gerhard Reitschuler, 2003. "The Fiscal Smile," IMF Working Papers 03/182, International Monetary Fund.
  5. Barrell, Ray & Pina, Alvaro M., 2004. "How important are automatic stabilisers in Europe? A stochastic simulation assessment," Economic Modelling, Elsevier, vol. 21(1), pages 1-35, January.
  6. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  7. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Apr, pages 35-67.
  8. Suescun, Rodrigo, 2007. "The size and effectiveness of automatic fiscal stabilizers in Latin America," Policy Research Working Paper Series 4244, The World Bank.
  9. International Monetary Fund, 2010. "Investment," IMF Working Papers 10/207, International Monetary Fund.
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