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An evaluation of indirect taxes in Turkey

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  • Oya Pinar Ardic

    ()
    (Bogazici University)

  • Burcay Erus

    ()
    (Bogazici University)

  • Gurcan Soydan

    ()
    (T. İş Bankası Commercial Marketing Department)

Abstract

The share of indirect taxes in tax revenues, specifically consumption taxes, is quite high in Turkey when compared to other OECD economies. This emphasis on indirect taxes in Turkey, as well as other developing economies, is argued to emerge from the inability of the government to collect direct taxes because of the existence of a large informal sector that is not easily taxable. It has been suggested that the recent increase in the indirect taxes puts the burden on mostly the poor, raising concerns of inequality. This paper evaluates the efficiency of the current indirect taxes in Turkey by taking into account distributional concerns. Using data from the 2003 Household Budget Survey, we estimate elasticities of different consumption goods and services using AIDS method. We then perform a marginal tax reform analysis to assess the efficiency of indirect taxes. Our findings indicate that there is room for improvement and the current tax rates are not optimal.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I4-P257.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 4 ()
Pages: 2787-2801

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Handle: RePEc:ebl:ecbull:eb-10-00008

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Keywords: Indirect taxes; Household survey; Marginal tax reform; AIDS estimation;

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References

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  1. Sònia Muñoz & Stanley Sang-Wook Cho, 2003. "Social Impact of a Tax Reform," IMF Working Papers, International Monetary Fund 03/232, International Monetary Fund.
  2. Savaþ Alpay & Ali Koc, 2000. "Household Demand in Turkey : An Application of Almost Ideal Demand System with Spatial Cost Index," Departmental Working Papers, Bilkent University, Department of Economics 0008, Bilkent University, Department of Economics.
  3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 312-26, June.
  4. Nichele, Veronique & Robin, Jean-Marc, 1995. "Simulation of indirect tax reforms using pooled micro and macro French data," Journal of Public Economics, Elsevier, Elsevier, vol. 56(2), pages 225-244, February.
  5. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer, Springer, vol. 8(1), pages 27-51, January.
  6. David Madden, 1995. "An analysis of indirect tax reform in Ireland in the 1980s," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 16(1), pages 18-37, May.
  7. J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
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Cited by:
  1. Murat Üngör, 2014. "Average effective tax rates on consumption for Turkey: New data and a comparative analysis," Economics Bulletin, AccessEcon, vol. 34(1), pages 567-580.

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