Nonlinear Relationship between Economic Growth and Tax Revenue in Turkey: Hidden Cointegration Approach

Abstract

The tax revenues, which constitute the most important income item of the state, provide the necessary financing for sustainable economic growth in evolved countries, development efforts in developing economies, and form the basis of social welfare. Therefore, the relationship between economic growth and tax revenues is significant and numerous empirical studies have been carried out on this subject. However, there is no study testing the hidden cointegration. This paper aims to test the presence of hidden cointegration between economic growth and tax revenues and intends to develop further typologies. To test the relationship, data on the ratio of annual tax revenues/ GDP between 1985-2018 in Turkey was used, and Hidden Cointegration Approach developed by Granger and Yoon (2002) and crouching error correction model were applied. The analysis results demonstrated that the tax revenues decreased across variables and that there was a cointegration relationship in periods when the GDP increased. This manuscript is a contribution to the literature since a different technique was performed to examine the relationship between growth and tax revenues, and the results obtained will be crucial for decision-makers.

Determinan Penerimaan Pajak Penghasilan Badan: Studi Negara Amerika Latin

“…Dalam konteks ini, penerimaan pajak negara maju yang menunjukkan pertumbuhan stabil akan mendapat penerimaan pajak yang lebih tinggi daripada pajak di negara berkembang dengan tingkat pertumbuhan yang tidak stabil (Goode, 1980). Menurut Tanzi (1987) dalam Çiğdem & Altaylar (2021), korelasi antara pendapatan per kapita dan pendapatan pajak secara keseluruhan adalah positif, terutama untuk negara berkembang, dimana peningkatan pertumbuhan meningkatkan penerimaan pajak dengan menumbuhkan basis pajak.…”

Determinants Of Corporate Income Tax Revenue In Latin America

“…Economic growth is a complex concept that began to be discussed when Adam Smith questioned its causes in his book entitled "An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 (Çiğdem & Altaylar, 2021). According to Myles (2009), growth is essential for improving individual welfare.…”

“…In this context, tax revenues in developed countries that show stable growth will receive higher tax revenues than those in developing countries with unstable growth rates (Goode, 1980). According to Tanzi (1987) in Çiğdem & Altaylar (2021) the correlation between per capita income and overall tax revenue is positive, especially for developing countries, where increased growth increases tax revenue by growing the tax base.…”

Oecd Ülkeleri̇nde Ekonomi̇k Büyüme Oranlarinin Bulanik Doğrusal Regresyon Ve Çoklu Doğrusal Regresyon Anali̇zi̇ İle Tahmi̇ni̇

“…The tax-growth relationship is much more important, especially for developing countries that have significant problems in financing growth and development (Demir and Sever, 2017). Scientific studies in this field (Ghura, 1998;Dye and Merriman, 2000;Mucuk and Alptekin, 2008;Mangir and Ertuğrul, 2012;Ibanichuka et al, 2016;Songur and Yüksel, 2018;Akıncı, 2019;Boğa, 2020, Çiğdem andAltaylar, 2021;Otu and Theophilus, 2021) modeled the relationship between tax revenues and economic growth, revealing different results and effects.…”