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An Evaluation of Indirect Taxes in Turkey

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  • Oya Pinar Ardic
  • Burcay Erus
  • Gurcan Soydan

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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Bibliographic Info

Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2010/01.

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Date of creation: Jan 2010
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Handle: RePEc:bou:wpaper:2010/01

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  1. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer, vol. 8(1), pages 27-51, January.
  2. Nichele, Veronique & Robin, Jean-Marc, 1995. "Simulation of indirect tax reforms using pooled micro and macro French data," Journal of Public Economics, Elsevier, vol. 56(2), pages 225-244, February.
  3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  4. 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, vol. 81(4), pages 972-982.
  5. Sònia Muñoz & Stanley Sang-Wook Cho, 2003. "Social Impact of a Tax Reform," IMF Working Papers 03/232, International Monetary Fund.
  6. David Madden, 1995. "An analysis of indirect tax reform in Ireland in the 1980s," Fiscal Studies, Institute for Fiscal Studies, vol. 16(1), pages 18-37, May.
  7. Savaþ Alpay & Ali Koc, 2000. "Household Demand in Turkey : An Application of Almost Ideal Demand System with Spatial Cost Index," Departmental Working Papers 0008, Bilkent University, Department of Economics.
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Cited by:
  1. Murat Ungor, 2014. "Average Effective Tax Rates on Consumption for Turkey : New Data and a Comparative Analysis," CBT Research Notes in Economics 1402, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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