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Nonlinear Relationship between Economic Growth and Tax Revenue in Turkey: Hidden Cointegration Approach

Author

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  • Gulgun Cigdem

    (İstanbul Gelişim Üniversitesi, Istanbul, Turkey)

  • Merve Altaylar

    (Dokuz Eylül Üniversitesi, Izmir, Turkey)

Abstract

The tax revenues, which constitute the most important income item of the state, provide the necessary financing for sustainable economic growth in evolved countries, development efforts in developing economies, and form the basis of social welfare. Therefore, the relationship between economic growth and tax revenues is significant and numerous empirical studies have been carried out on this subject. However, there is no study testing the hidden cointegration. This paper aims to test the presence of hidden cointegration between economic growth and tax revenues and intends to develop further typologies. To test the relationship, data on the ratio of annual tax revenues/ GDP between 1985-2018 in Turkey was used, and Hidden Cointegration Approach developed by Granger and Yoon (2002) and crouching error correction model were applied. The analysis results demonstrated that the tax revenues decreased across variables and that there was a cointegration relationship in periods when the GDP increased. This manuscript is a contribution to the literature since a different technique was performed to examine the relationship between growth and tax revenues, and the results obtained will be crucial for decision-makers.

Suggested Citation

  • Gulgun Cigdem & Merve Altaylar, 2021. "Nonlinear Relationship between Economic Growth and Tax Revenue in Turkey: Hidden Cointegration Approach," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(1), pages 21-38, June.
    • Handle: RePEc:ist:journl:v:71:y:2020:i:xi:p:21-38
    DOI: 10.26650/ISTJECON2021-908769
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    References listed on IDEAS

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    More about this item

    Keywords

    GDP; Taxes; Hidden Cointegration JEL Classification : O40 ; H20 ; E62;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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