The Khaldûn−Laffer Curve Revisited: A Personal Income Tax−Based Analysis for Turkey

Abstract

This paper focuses on an old but still discussed postulate, the Khaldûn-Laffer curve, and empirically applies it to personal income tax by using annual time-series data of Turkey for the period 1970-2015. From our analysis, two fundamental findings emerge: first, Turkish data provides evidence in favor of the Khaldûn-Laffer curve, suggesting that there is a non-linearity between tax rates and tax revenue. Second, the optimal tax rate that maximizes revenue from personal income tax is 15.03% against the current rate we estimate at 15.37%. These findings imply that Turkey's current personal income tax rate falls slightly into the prohibitive range of the curve. Overall, it is safe to argue that the current personal income tax rate should be lowered to its optimal value to maximize the revenue from personal income taxation. If done so, the Turkish fiscal authorities would be able to generate more revenue with a relatively lower tax rate.

Corporate social responsibility and tax avoidance: Channeling effect of family firms

“…The study suggests that differences between countries may be due to differences in national policies. However, the effect of the tax revenue of Turkey remains limited (Şen and Bulut Çevik, 2021). Tax avoidance in Turkey has cultural and social bases beyond the differences in tax policies.…”

The Double-Peaked Shape of the Laffer Curve in the Case of the Inverted S-Shaped Labor Supply Curve

“…The mutual convention held by supply-side economists who have revised and empirically tested the shape of the Laffer curve (also named The Khaldûn-Laffer curve [30]) is that, according to most economists, the shape of the curve that represents the effect of the personal tax and the tax revenue is the classical bell-shaped curve. This is also referred to as either the inverted U-shaped curve or the hump-shaped curve.…”

“…The Laffer bell-shaped curve was presented by Laffer [31,32] and, afterwards, by many additional researchers. Others have noted that the idea is that of Ibn Khaldun, a fourteenth century philosopher (See Şen et al, [30]). Economists from a different school of thought, such as Fullerton [33], Van Ravestein [34], and Hsing [35], attribute the source of the original inverse U-shaped Laffer curve to the revelation by Laffer to Adam Smith (Smith,[36], as cited by Şen et al, [30], p. 105).…”

“…Although counterarguments are raised concerning the source of the relationship between tax rate and tax revenue, all of the above referenced economists reach a mutual consensus in one respect. Whether the curve is named the Laffer or the Khaldun-Laffer curve [30], for almost 50 years, most economists have determined an inverse U-shaped curve (a bell-shaped curve) presenting the relationship between tax rate and tax revenue.…”