The Relationship Between Tax Revenues and Monetary and Macroeconomic Indicators: Evidence from the Policy Interest Rate, Consumer Price Index, and Industrial Production Index

This study analyses the effects of monetary and macroeconomic indicators on Turkey’s tax revenues. Using quarterly data covering the period 2011: Q1-2024: Q4, the short- and long-run impacts of the industrial production index, the Central Bank of the Republic of Turkey (CBRT) policy rate, and the consumer price index on total tax revenues are examined through the ARDL Bounds Testing approach. The empirical results indicate the existence of a long-run cointegration relationship between tax revenues and the variables included in the analysis. Long-run coefficient estimates reveal that the consumer price index, industrial production index, and policy interest rate exert statistically significant effects on tax revenues. The findings show that increases in the consumer price index and industrial production positively affect tax revenues, while the policy interest rate, which does not exhibit a significant effect in the short run, becomes an important determinant of tax revenues in the long run. The strongest impact on tax revenues is found to originate from the consumer price index. In this context, fiscal authorities aiming to enhance tax revenues should place greater emphasis on inflation dynamics and the implications of price level changes for tax collection in policy design processes. Moreover, the results suggest that economic growth and increases in production play a crucial role in ensuring the sustainability of tax revenues in Turkey, whereas tight monetary policies may exert adverse long-term pressures on tax revenues.