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Domestic Saving and Tax Structure: Evidence from Turkey

Year 2015, Volume: 23 Issue: 23, 87 - 112, 31.01.2015

Savaş Çevik

https://doi.org/10.17233/se.48977
Cited By: 1

Abstract

The impact of tax policy and tax structure on national saving level is an important question for both macroeconomic stabilization and growth purposes, for especially developing countries. This paper examines the impact of tax structure on domestic saving for Turkey through cointegration and vector error correction models from 1965-2011 annual data. The results indicate that there are unidirectional Granger causalities to domestic saving from variables on tax for short-run coefficients. For the long-run, taxes on income as a share of total tax revenue found to be having negative impact on domestic saving, while the ratio of consumption taxes to total tax revenue found to be having negative impact on domestic saving. While the results are consistent with theoretical literature, they may be expected to contribute to empirical discussion of design the tax policy on developing countries and Turkey where do not have enough empirical finding in the field.

Keywords

-

References

  • Aghion, P. & D. Comin & P. Howitt & I. Tecu (2009), “When Does Domestic Saving Matter for Economic Growth?”, Harvard Business School Working Paper, No. 09-080.
  • Aizenman, J. & B. Pinto & A. Radziwill (2009), “Sources for Financing Domestic Capital – Is Foreign Saving a Viable Option for Developing Countries”, Journal of International Money and Finance, 26, 682-702.
  • Aktaş, A. & D. Güner & S. Gürsel & G. Uysal (2012), “Structural Determinants of Household Savings in Turkey: 2003-2008”, BETAM Working Paper, No.07, Bahçeşehir University Center for Economic and Social Research, Istanbul.
  • Attanasio, O. & J. Banks (1998), “Trends in Household Saving Don’t Justify Tax Incentives to Boost Saving”, Economic Policy, 13(27), 547-583.
  • Auerbach, A.J. & L.J. Kotlikoff (1983), “National Savings, Economic Welfare, and the Structure of Taxation”, in M. Feldstein (ed.), Behavioral Simulation Methods in Tax Policy Analysis, Chicago: University of Chicago Press, 459-493.
  • Barro, R.J. (1974), “Are Government Bonds Net Wealth?”, Journal of Political Economy, 82, 1095-1117.
  • Blinder, A.D. & A. Deaton (1985), “The Time Series Consumption Function Revisited”, Brookings Papers on Economic Activity, 2, 465-512.
  • Boadway, R. & D. Wildasin (1995), “Taxation and Savings: A Survey”, Fiscal Studies, 15, 19-63.
  • Boskin, M.J. (1978), “Taxation, Saving, and the Rate of Interest”, Journal of Political Economy, 86(2), 3-27.
  • Bovenberg, A.L. (1989), “Tax Policy and National Saving in the United States: A Survey”, National Tax Journal, 2(2), 123-138.
  • Callen, T. & C. Thimann (1997), “Empirical Determinants of Household Saving: Evidence from OECD Countries”, IMF Working Paper, No. 97/181, International Money Fund, Washington D.C.
  • Cardenas, M. & A. Escobar (1998), “Saving Determinants in Colombia: 1925-1994”, Journal of Development Economics, 57(1), 5-44.
  • Dahan, M. & Z. Hercowitz (1998), “Fiscal Policy and Saving Under Distortionary Taxation”, Journal of Monetary Economics, 42(1), 25-45.
  • Değirmen, S. & A. Şengönül (2012), “Türkiye’de Net Özel Tasarruf-Yatırım Açığının Belirleyicileri”, Turkish Economic Association Discussion Paper, No.2012/114, Ankara.
  • Devereux, M.P. (1996), “Investment, Saving, and Taxation in An Open Economy”, Oxford Review of Economic Policy, 12 (2), 90-108.
  • Dickey, D.A. & W.A. Fuller (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Society,75, 427–431.
  • Elliott, G. & T.J. Rothenberg & J.H. Stock (1996), “Efficient Tests for an Autoregressive Unit Root”, Econometrica, 64, 813–836.
  • Engle, R.F. & C.W.J. Granger (1987), “Co-integration and Error Correction: Representation, Estimation, and Testing”, Econometrica 55, 251–276.
  • Fletcher, K. & C. Keller & P.K. Brooks & D. Lombardo & A. Meier (2007), Turkey: Selected Issues, IMF Country Report, No. 07/364, International Money Fund, Washington D.C.
  • Freebairn, J. (1991), “Some Effects of a Consumption Tax on the Level and Consumption of Australian Saving and Investment”, the Australian Economic Review, 4, 13-29.
  • Garner, C.A. (1987), “Tax Reform and Personal Saving”, Federal Reserve Bank of Kansas City Economic Review, 72(2), 8-19.
  • Gylfason, T. (1981), “Interest Rates, Inflation, and the Aggregate Consumption Function”, Reviews of Economics and Statistics, 63(2), 233-245.
  • Hakkio, C.S. & M. Rush (1991), “Cointegration: How Short is the Long Run?”, Journal of International Money and Finance, 10, 571-581.
  • Hall, R.E. (1985), “Real Interest and Consumption”, NBER Working Paper, No.1694, the National Bureau of Economic Research, Cambridge, MA.
  • Honohan, P. (2000). “Financial Policies and Household Saving, in K. Schmidt-Hebbel and L. Serven (eds.), the Economics of Saving and Growth, Cambridge: Cambridge University Press.
  • Howrey, E.P. & S.H. Hymans (1978), “The Measurement and Determination of Loanable-Funds Saving”, Brookings Papers on Economic Activity, 3, 655-685.
  • Jappelli, T. & L. Pistaferri (2003), “Tax Incentives for Household Saving and Borrowing”, in: P. Honohan (ed.), Taxation of Financial Intermediation: Theory and Practice for Emerging Economies, Washington D.C.: World Bank, 127-168.
  • Jenkins, P.G. (1989), “Tax Changes before Tax Policies”, in M. Gillis (ed.), Tax Reform in Developing Countries, Durham and London: Duke University Press, 233-251.
  • Johansen, S. (1988), “Statistical Analysis of Cointeration Vectors”, Journal of Economic Dynamics and Control, 12, 231-254.
  • Johansen, S. (1995), Likelihood-Based Inference in Cointegrated Vector Autoregressive Models, Oxford: Oxford University Press.
  • Johansen, S. & K. Juselius (1990), “Maximum Likelihood Estimation and Inference on Cointegration—with Applications to the Demand for Money”, Oxford Bulletin of Economics and Statistics, 52, 169–210.
  • Johansson, A. & C. Heady & J. Arnold & B. Brys & L. Vartia (2008), “Tax and Economic Growth”, OECD Economics Department Working Paper, 620, OECD, Paris.
  • Kerr, I. & V. Monsingh (1998), “Taxation Mix and Tax Policy in Developing Economies”, School of Economics and Finance Working Paper, No. 98.01, Curtin University, Perth, Western Australia.
  • Kotlikoff, L.J. (1984), “Taxation and Savings: A Neoclassical Perspective”, Journal of Economic Literature, 22(4), 1576-1629.
  • Loayza, N. & K. Schmidt-Hebbel & L. Serven (2000), “Saving in Developing Countries: An Overview”, World Bank Economic Review, 14(3), 393-414
  • Lopez, J.H. & K. Schmidt-Hebbel & L. Serven (2000), “How effective is Fiscal Policy in Raising National Saving?”, The Review of Economics and Statistics, 82(2), 226-238.
  • Özcan, K.M. & A. Günay & S. Ertaç (2003), “Determinants of Private Savings Behaviour in Turkey”, Applied Economics, 35, 1405–1416.
  • Phillips, P.C.B. & P. Perron (1988), “Testing for a Unit Root in Time Series Regressions”, Biometrica, 75, 335–346.
  • Poterba, J.M. (2001). “Taxation and Portfolio Structure: Issues and Implications”, in: L. Guiso, M. Haliassos and T. Jappelli (eds.), Household Portfolios, Cambridge, MA: MIT Press, 103-142
  • Rijckeghem, C.V. & M. Üçer (2009), The Evolution and Determinants of the Turkish Private Saving Rate: What Lessons for Policy?, Istanbul: TUSIAD.
  • Rodrik, D. (2012), “The Turkish Economy after the Global Financial Crisis”, Ekonomi-tek, 1(1), 41-61.
  • Summers, L.H. (1981), “Capital taxation and Accumulation in a Life Cycle Growth Model”, American Economic Review, Vol. 71, No.4, 533-544.
  • Tanzi, V. & H.H. Zee (1998), “Taxation and the Household Saving Rate: Evidence from OECD Countries”, IMF Working Paper, No: 98/36, International Money Fund, Washington D.C.
  • World Bank (2012), Sustaining High Growth: The Role of Domestic Savings, Turkey Country Economic Memorandum by the World Bank and the Turkish Ministry of Development, <http://siteresources.worldbank.org/TURKEYEXTN/Resources/361711-1331638027014/CEM_ DomesticSavings_fulltext.pdf>, 15.03.2013.
  • Yentürk, N. & B. Ulengin & A. Çimenoğlu (2009), “An Analysis of the Interaction among Saving, Investment and Growth in Turkey”, Applied Economics, 41, 739-751.
  • Sandmo A. (1985), “The Effects of Taxation on Savings and Risk Taking”, in: A. Auerbach & M. Feldstein (eds.), Handbook of Public Economics Vol. 1, Amsterdam: North-Holland, 265-311.

Domestic Saving and Tax Structure: Evidence from Turkey

Year 2015, Volume: 23 Issue: 23, 87 - 112, 31.01.2015

Savaş Çevik

https://doi.org/10.17233/se.48977
Cited By: 1

Abstract

The impact of tax policy and tax structure on national saving level is an important question for both macroeconomic stabilization and growth purposes, for especially developing countries. This paper examines the impact of tax structure on domestic saving for Turkey through cointegration and vector error correction models from 1965-2011 annual data. The results indicate that there are unidirectional Granger causalities to domestic saving from variables on tax for short-run coefficients. For the long-run, taxes on income as a share of total tax revenue found to be having negative impact on domestic saving, while the ratio of consumption taxes to total tax revenue found to be having negative impact on domestic saving. While the results are consistent with theoretical literature, they may be expected to contribute to empirical discussion of design the tax policy on developing countries and Turkey where do not have enough empirical finding in the field.

Keywords

-

References

  • Aghion, P. & D. Comin & P. Howitt & I. Tecu (2009), “When Does Domestic Saving Matter for Economic Growth?”, Harvard Business School Working Paper, No. 09-080.
  • Aizenman, J. & B. Pinto & A. Radziwill (2009), “Sources for Financing Domestic Capital – Is Foreign Saving a Viable Option for Developing Countries”, Journal of International Money and Finance, 26, 682-702.
  • Aktaş, A. & D. Güner & S. Gürsel & G. Uysal (2012), “Structural Determinants of Household Savings in Turkey: 2003-2008”, BETAM Working Paper, No.07, Bahçeşehir University Center for Economic and Social Research, Istanbul.
  • Attanasio, O. & J. Banks (1998), “Trends in Household Saving Don’t Justify Tax Incentives to Boost Saving”, Economic Policy, 13(27), 547-583.
  • Auerbach, A.J. & L.J. Kotlikoff (1983), “National Savings, Economic Welfare, and the Structure of Taxation”, in M. Feldstein (ed.), Behavioral Simulation Methods in Tax Policy Analysis, Chicago: University of Chicago Press, 459-493.
  • Barro, R.J. (1974), “Are Government Bonds Net Wealth?”, Journal of Political Economy, 82, 1095-1117.
  • Blinder, A.D. & A. Deaton (1985), “The Time Series Consumption Function Revisited”, Brookings Papers on Economic Activity, 2, 465-512.
  • Boadway, R. & D. Wildasin (1995), “Taxation and Savings: A Survey”, Fiscal Studies, 15, 19-63.
  • Boskin, M.J. (1978), “Taxation, Saving, and the Rate of Interest”, Journal of Political Economy, 86(2), 3-27.
  • Bovenberg, A.L. (1989), “Tax Policy and National Saving in the United States: A Survey”, National Tax Journal, 2(2), 123-138.
  • Callen, T. & C. Thimann (1997), “Empirical Determinants of Household Saving: Evidence from OECD Countries”, IMF Working Paper, No. 97/181, International Money Fund, Washington D.C.
  • Cardenas, M. & A. Escobar (1998), “Saving Determinants in Colombia: 1925-1994”, Journal of Development Economics, 57(1), 5-44.
  • Dahan, M. & Z. Hercowitz (1998), “Fiscal Policy and Saving Under Distortionary Taxation”, Journal of Monetary Economics, 42(1), 25-45.
  • Değirmen, S. & A. Şengönül (2012), “Türkiye’de Net Özel Tasarruf-Yatırım Açığının Belirleyicileri”, Turkish Economic Association Discussion Paper, No.2012/114, Ankara.
  • Devereux, M.P. (1996), “Investment, Saving, and Taxation in An Open Economy”, Oxford Review of Economic Policy, 12 (2), 90-108.
  • Dickey, D.A. & W.A. Fuller (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Society,75, 427–431.
  • Elliott, G. & T.J. Rothenberg & J.H. Stock (1996), “Efficient Tests for an Autoregressive Unit Root”, Econometrica, 64, 813–836.
  • Engle, R.F. & C.W.J. Granger (1987), “Co-integration and Error Correction: Representation, Estimation, and Testing”, Econometrica 55, 251–276.
  • Fletcher, K. & C. Keller & P.K. Brooks & D. Lombardo & A. Meier (2007), Turkey: Selected Issues, IMF Country Report, No. 07/364, International Money Fund, Washington D.C.
  • Freebairn, J. (1991), “Some Effects of a Consumption Tax on the Level and Consumption of Australian Saving and Investment”, the Australian Economic Review, 4, 13-29.
  • Garner, C.A. (1987), “Tax Reform and Personal Saving”, Federal Reserve Bank of Kansas City Economic Review, 72(2), 8-19.
  • Gylfason, T. (1981), “Interest Rates, Inflation, and the Aggregate Consumption Function”, Reviews of Economics and Statistics, 63(2), 233-245.
  • Hakkio, C.S. & M. Rush (1991), “Cointegration: How Short is the Long Run?”, Journal of International Money and Finance, 10, 571-581.
  • Hall, R.E. (1985), “Real Interest and Consumption”, NBER Working Paper, No.1694, the National Bureau of Economic Research, Cambridge, MA.
  • Honohan, P. (2000). “Financial Policies and Household Saving, in K. Schmidt-Hebbel and L. Serven (eds.), the Economics of Saving and Growth, Cambridge: Cambridge University Press.
  • Howrey, E.P. & S.H. Hymans (1978), “The Measurement and Determination of Loanable-Funds Saving”, Brookings Papers on Economic Activity, 3, 655-685.
  • Jappelli, T. & L. Pistaferri (2003), “Tax Incentives for Household Saving and Borrowing”, in: P. Honohan (ed.), Taxation of Financial Intermediation: Theory and Practice for Emerging Economies, Washington D.C.: World Bank, 127-168.
  • Jenkins, P.G. (1989), “Tax Changes before Tax Policies”, in M. Gillis (ed.), Tax Reform in Developing Countries, Durham and London: Duke University Press, 233-251.
  • Johansen, S. (1988), “Statistical Analysis of Cointeration Vectors”, Journal of Economic Dynamics and Control, 12, 231-254.
  • Johansen, S. (1995), Likelihood-Based Inference in Cointegrated Vector Autoregressive Models, Oxford: Oxford University Press.
  • Johansen, S. & K. Juselius (1990), “Maximum Likelihood Estimation and Inference on Cointegration—with Applications to the Demand for Money”, Oxford Bulletin of Economics and Statistics, 52, 169–210.
  • Johansson, A. & C. Heady & J. Arnold & B. Brys & L. Vartia (2008), “Tax and Economic Growth”, OECD Economics Department Working Paper, 620, OECD, Paris.
  • Kerr, I. & V. Monsingh (1998), “Taxation Mix and Tax Policy in Developing Economies”, School of Economics and Finance Working Paper, No. 98.01, Curtin University, Perth, Western Australia.
  • Kotlikoff, L.J. (1984), “Taxation and Savings: A Neoclassical Perspective”, Journal of Economic Literature, 22(4), 1576-1629.
  • Loayza, N. & K. Schmidt-Hebbel & L. Serven (2000), “Saving in Developing Countries: An Overview”, World Bank Economic Review, 14(3), 393-414
  • Lopez, J.H. & K. Schmidt-Hebbel & L. Serven (2000), “How effective is Fiscal Policy in Raising National Saving?”, The Review of Economics and Statistics, 82(2), 226-238.
  • Özcan, K.M. & A. Günay & S. Ertaç (2003), “Determinants of Private Savings Behaviour in Turkey”, Applied Economics, 35, 1405–1416.
  • Phillips, P.C.B. & P. Perron (1988), “Testing for a Unit Root in Time Series Regressions”, Biometrica, 75, 335–346.
  • Poterba, J.M. (2001). “Taxation and Portfolio Structure: Issues and Implications”, in: L. Guiso, M. Haliassos and T. Jappelli (eds.), Household Portfolios, Cambridge, MA: MIT Press, 103-142
  • Rijckeghem, C.V. & M. Üçer (2009), The Evolution and Determinants of the Turkish Private Saving Rate: What Lessons for Policy?, Istanbul: TUSIAD.
  • Rodrik, D. (2012), “The Turkish Economy after the Global Financial Crisis”, Ekonomi-tek, 1(1), 41-61.
  • Summers, L.H. (1981), “Capital taxation and Accumulation in a Life Cycle Growth Model”, American Economic Review, Vol. 71, No.4, 533-544.
  • Tanzi, V. & H.H. Zee (1998), “Taxation and the Household Saving Rate: Evidence from OECD Countries”, IMF Working Paper, No: 98/36, International Money Fund, Washington D.C.
  • World Bank (2012), Sustaining High Growth: The Role of Domestic Savings, Turkey Country Economic Memorandum by the World Bank and the Turkish Ministry of Development, <http://siteresources.worldbank.org/TURKEYEXTN/Resources/361711-1331638027014/CEM_ DomesticSavings_fulltext.pdf>, 15.03.2013.
  • Yentürk, N. & B. Ulengin & A. Çimenoğlu (2009), “An Analysis of the Interaction among Saving, Investment and Growth in Turkey”, Applied Economics, 41, 739-751.
  • Sandmo A. (1985), “The Effects of Taxation on Savings and Risk Taking”, in: A. Auerbach & M. Feldstein (eds.), Handbook of Public Economics Vol. 1, Amsterdam: North-Holland, 265-311.
There are 46 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Savaş Çevik

Publication Date January 31, 2015
Submission Date January 27, 2015
Published in Issue Year 2015 Volume: 23 Issue: 23

Cite

APA Çevik, S. (2015). Domestic Saving and Tax Structure: Evidence from Turkey. Sosyoekonomi, 23(23), 87-112. https://doi.org/10.17233/se.48977
AMA Çevik S. Domestic Saving and Tax Structure: Evidence from Turkey. Sosyoekonomi. January 2015;23(23):87-112. doi:10.17233/se.48977
Chicago Çevik, Savaş. “Domestic Saving and Tax Structure: Evidence from Turkey”. Sosyoekonomi 23, no. 23 (January 2015): 87-112. https://doi.org/10.17233/se.48977.
EndNote Çevik S (January 1, 2015) Domestic Saving and Tax Structure: Evidence from Turkey. Sosyoekonomi 23 23 87–112.
IEEE S. Çevik, “Domestic Saving and Tax Structure: Evidence from Turkey”, Sosyoekonomi, vol. 23, no. 23, pp. 87–112, 2015, doi: 10.17233/se.48977.
ISNAD Çevik, Savaş. “Domestic Saving and Tax Structure: Evidence from Turkey”. Sosyoekonomi 23/23 (January 2015), 87-112. https://doi.org/10.17233/se.48977.
JAMA Çevik S. Domestic Saving and Tax Structure: Evidence from Turkey. Sosyoekonomi. 2015;23:87–112.
MLA Çevik, Savaş. “Domestic Saving and Tax Structure: Evidence from Turkey”. Sosyoekonomi, vol. 23, no. 23, 2015, pp. 87-112, doi:10.17233/se.48977.
Vancouver Çevik S. Domestic Saving and Tax Structure: Evidence from Turkey. Sosyoekonomi. 2015;23(23):87-112.

Cited By

Analysis of the Keynesian Saving Function in Turkish Economy: 1985-2021
Kırklareli Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi
https://doi.org/10.53306/klujfeas.1341504
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