Interaction of indirect taxes and inflation: the case of Turkey

Abstract

Inflation is an undesirable situation for a country’s economy due to the negative effects it causes. Therefore, it has been the subject of numerous empirical studies. Many of these studies focus on the interaction between inflation and indirect tax revenues, and it presents arguments that there is a strong interaction between the variables discussed. T he main feature that distinguishes our study from others is that it talks about how the economic policies implemented in the Presidential Government System, which was passed as of 09 July 2018, affect the aforesaid interaction. In this study, which aims to reveal the interaction between indirect tax revenues and inflation, indirect tax revenues and inflation data in Turkey for the period 2004:1-2021:8 are analyzed with Vector Auto Regressive (VAR) on a monthly basis. As a result of the analysis, a statistically significant and important interaction was detected between the two parameters. In addition, findings regarding the existence of a one-way causality relationship from inflation to tax revenues were obtained.