Personal Income Tax Elasticity in Turkey: 1975-2005

Yesim Kustepeli () and Onur Sapci
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Yesim Kustepeli: Department of Economics, Faculty of Business, Dokuz Eylül University

No 06/01, Discussion Paper Series from Dokuz Eylül University, Faculty of Business, Department of Economics

Abstract: The estimation of tax elasticity; the response of tax revenues to changes in income, is important for at least three reasons: i) formulating government budgets and monitoring tax collections (Sen, 2002), ii) the specification of tax functions, iii) the automatic stabilizing properties of the tax system and the public sector deficit (Hutton, Lambert; 1980, 1982). Among the various approaches to tax elasticity calculation in literature (Tanzi, 1969, 1976; Greytak and McHugh, 1978; Hutton and Lambert, 1980; Ehdaie, 1990), the most famous approach is Tanzi’s Method due to its simplicity and the consensus about its correctness of elasticity estimates. Johansen cointegration tests for the period 1975 - 2005 show that personal income tax elasticity in Turkey is around 0.95, indicating almost unit elasticity. Increasing income can be considered as insurance to maintain an equivalent increase in tax revenue; however it doesn’t seem to be the way to obtain higher tax revenues.

Keywords: Personal income tax; tax elasticity; Tanzi method (search for similar items in EconPapers)
JEL-codes: E62 H24 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2006-07-11, Revised 2006-07-11
New Economics Papers: this item is included in nep-cwa, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (2)

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