The Relationship Between Economic Growth and Taxation; A Case Study for Turkey
Chapter from the book:
Ertürkmen,
G.
(ed.)
2024.
Current Applications of Macroeconomics .
Synopsis
Personal income tax, corporate income tax and taxes on goods and services have a significant impact on economic growth. Income tax is a type of tax levied on the income earned by individuals and plays a decisive role in consumption levels and living standards by directly affecting the purchasing power of individuals. While an increase in income tax may reduce the saving rate, a decrease may increase the level of economic growth by increasing purchasing power. Corporate income tax is a tax levied on the profits of companies. This tax directly affects companies' investment decisions and plays a crucial role in economic activity and employment rates. High corporate tax rates may discourage investment, while low rates may encourage more investment and innovation. Taxes on goods and services affect economic growth indirectly through their effect on consumption. High rates of taxes on goods and services can reduce consumer spending. However, the proper management of such taxes can contribute to improving social welfare by enabling better financing of public services. As a result, the design and implementation of these taxes determine the level of economic welfare through issues such as economic growth, employment and social inequality. Effective tax policy can improve the overall quality of life in society by increasing economic welfare. In this study, the impact of goods and services, income and corporate taxes on per capita income growth in Turkey for the period 1990-2020. According to the results of the analyses, there is a negative and statistically significant relationship between income tax, goods and services tax and per capita income growth in the long run. On the other hand, it is concluded that corporate income tax does not affect per capita income growth in the long run.