Is taxation a curse or a blessing? The case of Turkiye

Abstract

Abstract This study aims to reveal whether taxes are blessings or curses based on the distinction between direct and indirect taxes. As in the past, taxation is an indispensable instrument of government policy in today’s modern state administration models. Since taxation is an inevitable phenomenon, designing an effective and efficient tax policy is an important decision process in economic development. This study will serve as a source for formulating an effective fiscal policy. Within the scope of the study, 1998/Q1 period and 2023/Q2 quarterly data for Turkiye are used. The tax curse hypothesis is analyzed using Prais-Winsten and Cumulative Fourier-frequency Toda & Yamamoto Test methods. In addition, the long-run performance of the relationship between the variables used in the model was evaluated by Wavelet Transform Coherence (WTC) analysis. The results of the analysis reveal that direct taxes have a negative impact on economic growth and thus the tax curse hypothesis is valid, while there is no tax curse in terms of indirect taxes. The study also reveals that direct taxes have a devastating effect in economies that are in the middle of the economic growth process and have a high growth rate, but this effect is not permanent and disappears after a while. The results are important in terms of guiding the formulation of government policies and the formulation of effective tax policies, especially for developing countries.