What are the Poverty and Inequality Impacts of Fiscal Policy in Turkey?

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Relative contributions of indirect taxes and inflation on inequality: What does the Turkish data reveal?

“…This, combined with the fact that they are consumed more by the poor than by the rich, explains why we found the highest regressivity of taxes on these items (a ∆PV value of approximately 0.5). This result is in the line with Cuevas et al (2020) who show that SCT on alcohol and tobacco products has the most unequalizing effect among the indirect taxes in Turkey. Figure 2 also shows that there were significant decreases in tax rates on “Clothing and footwear”, “Furniture, houses appliances, and home care services” and “Transportation”, “Health” and “Restaurant and hotels.” These are also the commodities that comprise a bigger part of the budgets of the rich than the poor.…”

“…Cuevas et al (2020), who investigates the distributional effects of Turkish fiscal policy, provides evidence on the regressivity of indirect taxes in Turkey. According to Cuevas et al (2020), VAT and SCT combined lead to an increase in inequality. In addition, they claimed that the effect of indirect taxes is higher than peer countries.…”

“…The conclusions that VAT is progressive are further supported by OECD (2014) and Thomas (2022). Cuevas et al (2020), who investigates the distributional effects of Turkish fiscal policy, provides evidence on the regressivity of indirect taxes in Turkey. According to Cuevas et al (2020), VAT and SCT combined lead to an increase in inequality.…”