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Indirect Taxes, Social Expenditures and Poverty:What Linkage?

  • Fatih KARANFIL

    ()

    (EconomiX-CNRS and University of Paris Ouest, Faculty of Economics, Management, Mathematics and Computer Science, Department of Economics)

  • Ata OZKAYA

    ()

    (Galatasaray University, Faculty of Economics and Administrative Sciences, Department of Economics,)

We shed light into the empirical relationship between social expenditures and poverty for Turkey over the period 1975-2005. We estimate first a series for the headcount index which is not exactly known due to measurement problems in countries such as Turkey, where the degree of unrecorded economy is higher. For this purpose, employing Kalman filter technique, we use social expenditures, public income and interest payments in our model. Then, cointegration analysis is used to investigate the relationship between the estimated headcount index and the share of indirect taxes in the total tax income. The study concludes that: first, the portion of poor population increases and it reaches 17.6 percent in 2005; second, social expenditures increase thanks to the rise in public income which is realized by the relative increase in the share of indirect taxes in total tax revenues. This policy impedes in the long run poverty reduction; and third, the increase in this share leads to a higher headcount index.

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Article provided by Ege University Faculty of Economics and Administrative Sciences in its journal Ege Academic Review.

Volume (Year): 13 (2013)
Issue (Month): 3 ()
Pages: 337-350

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Handle: RePEc:ege:journl:v:13:y:2013:i:3:p:337-350
Contact details of provider: Web page: http://iibf.ege.edu.tr/ENG/

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  1. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
  2. Kanbur, Ravi & Keen, Michael & Tuomala, Matti, 1994. "Optimal non-linear income taxation for the alleviation of income-poverty," European Economic Review, Elsevier, vol. 38(8), pages 1613-1632, October.
  3. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, vol. 94(5), pages 1705-1716, December.
  4. Brixi, Hana Polackova & Ghanem, Hafez & Islam, Roumeen, 1999. "Fiscal adjustment and contingent government liabilities : case studies of the Czech Republic and Macedonia," Policy Research Working Paper Series 2177, The World Bank.
  5. Karanfil, Fatih & Ozkaya, Ata, 2007. "Estimation of real GDP and unrecorded economy in Turkey based on environmental data," Energy Policy, Elsevier, vol. 35(10), pages 4902-4908, October.
  6. Ayse Y. Evrensel, 2004. "IMF Programs and Financial Liberalization in Turkey," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 40(4), pages 5-19, July.
  7. Leu, Shawn Chen-Yu & Sheen, Jeffrey, 2011. "A small New Keynesian state space model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1), pages 672-684.
  8. Christian E. Weller, 2007. "The Benefits of Progressive Taxation in Economic Development," Review of Radical Political Economics, Union for Radical Political Economics, vol. 39(3), pages 368-376, September.
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