Issues in Public Sector Economics
Empirical Analysis from Various Countries
Table Of Contents
- About the author(s)/editor(s)
- About the book
- This eBook can be cited
- Table of Contents
- Section I: Issues in Public Sector Revenues
- Political Attitudes and Tax Effort of Cities in Turkey: An Empirical Investigation (Akdede / Sacit Hadi)
- The Effects of Illicit Financial Flows from Financial Crimes on Developing Country Economies (Bozdoğanoğlu / Burcin)
- Evaluation of The Problems Regarding Taxation of Electronic Commerce in The Context of Informal Economy and Tax Evasion (Güneş Çetin Gerger / Bozdoğanoğlu / Burçin)
- Assessment of SICPA and CPA Chamber Membership Fees within the Principle of Legality (Taş / Fatma)
- Can Specialized Tax Software Reduce Tax Compliance Costs in Developing Countries? (Yılmaz / Fatih / Coolidge, Jacqueline)
- Understanding Influence of Tax Amnesties on Tax Compliance and Fairness Perceptions of Taxpayers (Yucedoğru / Recep / Idris Sarısoy)
- Section II: Issues in Public Sector Expenditures
- Aging Effect on the Public Health Expenditures: A Reexamination (Balıkcıoğlu / Eda / İyidoğan / Pelin Varol / Yılmaz / Hakan Hakkı)
- The Effect of Institutions and Conflict on Economic Performance (Sezgin / Selami / Köprücü / Yılmaz)
- A Comparative Study of Public Expenditures in Two Periods in Turkey: 1927–1950 and 1980–2000 (Uçkaç / Aynur)
- Section III: Analysis of Inequality
- Is Income Inequality Linked to Economic Freedom? Empirical Evidence from OECD Countries (Acar / Yasin)
- Improving Income Distribution in Turkey (Şener / Orhan)
Issues in Public Sector Revenues
Political Attitudes and Tax Effort of Cities in Turkey
Abstract: This paper investigates the relationship between political attitudes and tax effort of the main cities in Turkey. It is found that cities with relatively higher vote share for more conservative and right-wing governing party have smaller tax effort, defined by three different measures: tax base per capita, the accrued tax per capita, and the number of tax returns per capita. It is de facto found that more conservative and right-wing cities have smaller tax effort even though cities are the same before the tax code since Turkey’s tax law is highly centralized; there is no fiscal federalism. This finding does not necessarily imply that more conservative and right-wing cities evade taxes. Regressions are controlled for income and/or development level of cities. It might be possible that there might be some tax avoidance, not tax evasion, in those more conservative and right-wing cities. The possible links between political attitude and tax effort are discussed in the paper in some detail.
Keywords: Tax effort, political parties, Turkish cities
JEL Classification: H1
This paper investigates, at the city level aggregation, the relationship between the political attitudes and tax effort of cities in Turkey. Political attitudes of the cities are measured by the vote shares of different political parties, governing conservative right-wing party and the main opposition left party respectively. These two parties constitute at least seventy per cent of total votes in Turkey. The Nationalistic Movement Party (MHP in Turkish) and Democratic People Party (HDP in Turkish) are the other two opposition parties in Turkey, and their vote shares are around 20 percent together. They cannot be considered main opposition parties since in different contexts both parties have some policies in common with the governing political party, which is the Justice and Development Party (AKP in Turkish). For example, in the so -called “peace process” with the ← 11 | 12 → Kurdish political movement, which is also to some extent represented by HDP, the governing party (AKP) had common policies with HDP. In another context of constitutional change in terms of going from the parliamentary system to the presidential system, MHP had the same agenda and propaganda as the governing party. In other words, the People’s Republican Party (CHP in Turkish) seems to be singled out the most important opposition party for many political issues in Turkey. Therefore, in the empirical analysis in the following pages, we use these two main and biggest political parties for investigating the relationship between political attitudes and tax effort of cities. Some political scientists discuss what is left and what is right in Turkey. The controversy or discussion about what is political left and what is political right in Turkey is beyond the scope of this paper. We take in this paper AKP as the governing conservative right-wing party and CHP as the opposition left-wing party.
Tax effort is usually defined as the tax revenue as a percentage of the gross domestic product (GDP) of a country or a city. This paper also takes this view to calculate the tax effort of different cities. However, not the tax revenue but tax base as a percentage of GDP and accrued tax as a percentage of GDP are taken as the main measures of tax effort since these two measures capture the magnitude of the tax capacity of a city or a country. From time to time, people and institutions do not pay their accrued taxes for different reasons. In other words, tax collection rate might be smaller than one for different reasons. Therefore, tax base and accrued tax as a percentage of GDP are taken as the measures of tax effort in the empirical analysis here. Other than tax base and accrued tax as a percentage of GDP, per capita tax measures are also used in the empirical analysis. For the popular press, sometimes tax base, not as a percentage of GDP, but tax base per capita might be a more important measure to see on average how much tax burden in a sense a typical person has. Therefore, tax effort is also calculated by three different measures here, namely accrued tax per capita, tax base per capita, and the number of tax return per capita. Only personal income tax (PIT) is analyzed here. In Turkey, for so many years, not direct taxes but indirect taxes such as taxes on consumption have been an important part of the Turkish tax system. However, in this paper, people’s attitudes towards paying taxes are investigated. Therefore, not the consumption taxes or corporate tax, personal income tax is under investigation. All these three per capita tax measures capture in a sense the taxable capacity of a city or a country. Turkey has a centralized system and does not have fiscal federalism. Therefore, cities or local governments do not have any legal power or authority to levy a tax on the citizens who reside within the limits of the borders of the city. In other words, ← 12 | 13 → the main elements of taxation are determined by the Parliament. All the cities are subject to the same rules even though from time to time there might be some special development incentives like lower tax rates for some underdeveloped cities or industries. Therefore, this paper investigates whether cities have different attitudes to having th same per capita tax effort even though they are subject to the same rules in terms of the tax code, after controlling for many other variables.
Why do we study cities in terms of different tax measures? Cities in Turkey show a great deal of difference or diversity in terms of cultural and economic structure. Cultural differences can be taken as lifestyle differences (conservative or liberal) and ethnic and religious differences as well. Some cities are more culturally liberal than other cities. For example, Izmir, which is a very Western city in Turkey, can be considered culturally more liberal than, say, Erzurum, which is one of the main cities in the Eastern Anatolian region. Cities, of course, can be differentiated in terms of economic well-being as well. Cultural differences are captured in this paper by the vote shares of different political parties. The governing political party is considered as the conservative religious right-wing party. This is not our definition of AKP. Official representatives of AKP describe it as a religiously conservative party. CHP is considered a culturally more liberal party than AKP.
This paper in a sense is related to both tax morale and tax effort literature. It is related to tax effort literature since it is investigating the determinants of the potential tax base and tax revenue. It is also related to tax morale since even though the cities are the same before the tax code of Turkey, there are significant differences in tax burdens among the cities in Turkey after controlling the regressions for several controlling variables generally mentioned in the literature. The main intended contribution of the paper is to include the political variables into the tax effort regression models. Before going further, some observations about Turkey’s political life would give the reader the necessary context to understand the paper better. Turkey is a political country! What this statement means goes beyond the political interests among major groups in society. It is discussed in depth in the political science and economics literature that many developed nations are political as well, giving the example of lobbying intensively among the various pressure groups in these countries. However, the statement about Turkey goes beyond lobbying. Turkey is a highly political and politically polarized country since:
– The media is politicized beyond the political nature of media. Many journalists were in prison in Turkey when this paper was written. ← 13 | 14 →
– The judicial system is politicized. It is discussed in the literature that there was “judicialization of Turkish politics” as mentioned in Shambayati and Sutcu (2012), while there is politization of the judicial system now.
– It is being discussed in the popular press that universities and university system are politicized in Turkey for a long time that most appointments in universities are politicized including the appointments of university rectors.
– Economic life is so politicized in Turkey that even capital accumulation by different groups is called differently. Business owners with strong religious ties are called the representatives of “green capital” or “Islamic capital” (Can, 1997; Demir et al., 2004).
– Different religious organizations, like different communities or congregations, especially the ones which are close to the governing political party, are advertising about job-finding. They try to attract new members by propaganda about helping them to find jobs. They try to convince potential members by stating that they have strong ties with the governing political party of Turkey and it would be easy for them to find a job for a prospective member.
– It is also very observable in Turkey that many jobless people, high-level civil servants (including doctors, engineers, teachers, even judges, prosecutors, military, and police officers) in government who wish to relocate (tayin) in another city, and any kind of government workers who want to relocate to another city would seek any kind of favor from the governing party. There is a perception in Turkey that if one is close to the governing party, one will probably get located in a job, or get relocated in another city.
Last but not least by any means, there was an attempted military coup d’éetat in the summer of 2016 in Turkey. This event itself shows significantly that Turkey is a political country.
Turkey is highly politicized in almost every aspect of economic, social, and cultural life and this politicization has not decreased with the rise of the governing religious/conservative party in Turkey since 2002.
Therefore, the main question of this paper is the following: whether there is a difference in the tax effort of different cities in a highly politicized and administratively centralized country in which main elements of taxation are not determined at the city or local government level? In other words, where every city is the same before the tax code legally, in the application, however, there is a significant difference in the tax revenue effort after controlling for several factors. The empirical question that this paper investigates is whether relatively more conservative/right-wing cities have smaller tax revenue efforts after controlling for other factors for tax effort. ← 14 | 15 →
The rest of the paper is organized as follows. The next section briefly gives the relevant literature. Section three is about data sources and some descriptive statistics. Section four gives a simple estimation model. Finally, section five concludes the paper.
2. Brief Literature Review
This paper is an extension of Akdede and Salur, (2016). They investigated the same relationship for the 2007 election period in Turkey. This paper investigates the 2011 election period in Turkey. This brief literature review is actually taken from Akdede and Salur, (2016). The literature on tax and tax-related issues goes far back. There is a huge literature about tax effort, tax morale, tax evasion, tax compliance, tax amnesty, and their various determining economic, cultural, and social factors. Allingham and Sandmo (1972) studies theoretically tax evasion, Sandford (1973) studies tax avoidance, James and Nobes (1996) and Punch (1996) tax evasion and tax avoidance. The relationship between tax morale and other tax concepts like tax evasion, tax compliance, tax amnesty are studied in Torgler (2001, 2002, 2005, 2006, 2007), Alm and Torgler (2006), Torgler and Schaltegger (2005), Torgler and Schneider (2007a, 2007b), There is also recently developed literature about the tax revenue effort and tax-related concepts like tax morale and tax compliance: Bird et al. (2008) and Piancastelli (2001).
There is also a huge literature about politics and tax revenue effort, Bird et al. (2008). Bird et al. (2008) find that a more legitimate and responsive state is probably an essential precondition for a more adequate level of tax effort in developing countries and also high-income countries. In particular, an improvement in voice and accountability will lead to a higher tax effort.
Dennis et al. (2007) finds that democratic control of the state is positively associated with a relatively lower tax burden on the poor. They investigate the states in the USA. Unfortunately, in our data set, we don’t have data about the tax burden of different segments/groups within the city. Dennis et al. (2007) uses political strength as the percentage of governor and legislature vote shares of two different parties: democrats, and republicans.
Dennis et al. (2011) find that the effective state and local tax rate for the top 1% of income households as a percentage of the effective state and local tax rate for the bottom 20% of income households in 2002 is significantly influenced by whether a state has a multi-rate income tax, right-to-work laws, the liberalism of a state’s electorate, the average tax burden in a state, and past tax policy.
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- Publication date
- 2018 (October)
- Politics and Taxation Tax Effort in Turkey Aging and Health Expenditures Public Expenditures Institutions and Growth Economic Freedom Analysis of Inequality
- Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2017. 222 pp., 23 fig. b/w, 41 tables, 3 graphs