Tax composition and growth in Turkey: An empirical analysis

Abstract

The dominant view in the endogenous growth literature draws on the idea that direct taxation harms economic growth while indirect taxation does not. The object of this paper is to test the effect of direct-indirect tax composition on economic growth for the Turkish Economy for the period of 1968-2006 and to assess whether the choice between direct and indirect taxes is linked to the growth rate of the economy or not. The model in this analysis employs Feder model to investigate the relation between tax composition and growth in Turkey. In line with the predictions of the endogenous growth models, our findings suggest that the real output is positively related to indirect tax revenue but direct taxation has no significant effect. These results imply the positive effect of the transformation in the tax revenue composition on the economic growth during the involved period in Turkish Economy. © EuroJournals Publishing, Inc. 2010