The Impact of Underground Economy on the Sustainability of Tax Policy in Turkey

Ekrem Toparlak and Hünkar Güler ()
Additional contact information
Ekrem Toparlak: Nigde Omer Halisdemir University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Nigde, Turkey
Hünkar Güler: Nigde Omer Halisdemir University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Nigde, Turkey

Istanbul Journal of Economics-Istanbul Iktisat Dergisi, 2018, vol. 68, issue 1, 161-179

Abstract: This paper attempts to first evaluate the effects of underground economy on the sustainability of tax receipts, and then to search new approaches in tax policy. Underground economy reduces predictability in economic policy, decreases tax receipts, and encourages illegal activities. In Turkey, shifting taxation on indirect and labor-income taxes has created tax corridors (or tax traps), which makes the sustainability of tax receipts even more difficult. As a result, as put forward in this paper, underground economy in developed countries is lower than in developing countries. National trust in indirect taxes, which decrease the underground economy, is no longer accepted, and tax audiences in Turkey provide additional tax receipts for budgets. In Turkey, receipts from taxes on consumption have recently reached an upper limit, and this has created tax corridors, and thus tax policies have lost their elasticity. To maintain fiscal discipline, productivity of public expenditures should be increased, and the problems associated with underground economy should be tackled.

Keywords: Underground economy; tax policy; optimal taxation (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cdn.istanbul.edu.tr/file/1CD58DF90A/BA9840 ... 26650/ISTJECON405075 (application/pdf)
http://ije.istanbul.edu.tr/en/yazi/10-26650-istjec ... 70006E0039006B003100 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ist:journl:v:68:y:2018:i:1:p:161-179

DOI: 10.26650/ISTJECON405075

Access Statistics for this article

Istanbul Journal of Economics-Istanbul Iktisat Dergisi is currently edited by Gökhan Karabulut

More articles in Istanbul Journal of Economics-Istanbul Iktisat Dergisi from Istanbul University, Faculty of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Istanbul University Press Operational Team (Ertuğrul YAŞAR) ().